Learning leaders, HR professionals and advocates of employee development all strive to persuade their companies to increase funding for rewards programs. Their rallying cry is that such investments ultimately increase productivity, employee morale and retention. However, according to a new study from Deloitte Touche Tohmatsu, many companies believe their metrics for measuring ROI are inadequate.
According to the report, “Rewards Transformation: Turning Rewards from a Cost into an Investment,” more than two-thirds of employee-benefit specialists believe their existing tools are not very effective in helping assess the link between their rewards programs and their ROI.
The e-survey of 123 U.S. employee benefits specialists found that approximately 70 percent consider their current tools and methodologies “ineffective” or “minimally effective” in determining the business value of rewards investments. This is supported by the survey finding that only 21 percent of respondents’ rewards strategies were closely aligned with their corporate business strategies.
According to Joseph Rosalie, a Deloitte Consulting principal and national leader of Deloitte’s global employer rewards practice, total rewards costs often exceeding 40 percent of a company’s revenue, and indirect rewards such as health and retirement benefits, training and development, and paid leave represent approximately 30 percent of those costs. Rosalie said companies should be able to better identify and measure the return value for this level of spending. Companies often struggle with defining the concept of total rewards for measurement purposes, or they focus on the financial aspects of their rewards programs and omit other employee-valued benefits such as flexibility and opportunity.
According to the survey, approximately 28 percent of respondents report no clear definition of total rewards for purposes of integrated measurement and management policy. Of those respondents that did have a working definition of total rewards, two-thirds do not include any non-financial rewards in their definition for purposes of management and measurement.
One of the tools respondents use most often when designing total rewards programs is benchmarking, the survey found. More than half of the employee benefit specialists said their most important approach for setting pay levels was to provide rewards at a certain percentile of defined industry benchmarks, and 89 percent considered benchmarking one of the three most important approaches used for setting pay levels.
Survey participants reported a strong belief in performance-related pay within rewards programs. Most consider it a critical tool for at least their key employees (88 percent), and 59 percent consider it key for a large portion of employees.
Approximately 61 percent of survey respondents have either explicitly or implicitly defined “critical workforce segments” within their companies, which the survey defines as employee groups that have the greatest impact on the value chain, possess the skills that are most difficult to replace, and/or are currently in the shortest supply. Among those respondents whose companies either explicitly or implicitly defined their critical workforce segments, 22 percent said they proactively design rewards programs to meet critical workforce segments’ needs, and 35 percent said critical workforce segments receive significant consideration in program design.
According to the survey results, 59 percent used surveys to gather information from their employees, yet only 3 percent administered these surveys more frequently than once a year. In addition, 22 percent of respondents do not collect any feedback from employees at all. Exit interviews, on-boarding interviews and focus groups also were used by survey respondents.