Due to the reduction in corporate tax rates in the Tax Cuts and Jobs Act of 2017,1 companies have an opportunity to reinvest those savings in the business. Many are choosing to share the savings with their workers in the form of a cash bonus. But while these organizations’ intentions may be good, the outcome of this decision is a short-term, one-time event, rather than something that has longer-term impact. Why? It could be as simple as this: They didn’t ask workers about their wants, needs, and preferences.
Two underlying issues
While it might be hard to imagine that giving workers extra money could be perceived as anything but positive, the “what to do with the tax savings” question really calls attention to two underlying issues:
Employers should be thinking more holistically about rewards to be able to optimize the value of their investment, and
Employers should be looking to their workforce for guidance on the rewards workers find meaningful.
Consider that for the last 30 years or so, we’ve talked about compensation and benefits as “total rewards,” which were mostly financial…salary, health insurance, a 401(k), and the like. Today, and ongoing as the future of work continues to unfold, an increasingly diverse workforce is seeking more than these traditional rewards and is equally focused on things such as well-being, career development, and recognition. Workers have moved from seeking total rewards to seeking “total relationships” with their employers.
Many employers, however, are still stuck in the old, financially oriented rewards model. So when a cost-savings opportunity in the form of tax reform appears, oftentimes their first thought is to give workers a bonus. What could go wrong with that?
Unfortunately, this strategy could be detrimental on both sides: receiver and giver. For example, recipients could perceive the bonus as “too little, too late” or simply an attempt to follow the lead of other companies that provided a one-time bonus. Or it could be that a one-time bonus just isn’t that meaningful to the workers receiving it, or seems small in comparison to the company’s overall and ongoing tax savings. It also does little to connect workers to a bigger, longer-term value proposition of how the organization views and values them.
The organizations giving the reward—even with the very best of intentions—potentially risk bad press if the bonus is received poorly by workers. Or they could risk talent retention and acquisition issues if workers feel it’s not as worthwhile as what other companies offer.
Stepping back to move ahead
Organizations can be doing so much more to make rewards more meaningful and build lasting employment relationships. It’s no secret that compensation and benefits are typically the largest expense organizations face, and our research shows that $1,500 per full-time employee (FTE) is typically wasted by offering benefits workers don’t value or appreciate. Given this, organizations should be looking at ways to help optimize the value of their human capital as a balance sheet asset—and that includes being more strategic about rewards.
Rewards are both key to differentiating your company as an irresistible place to work, and an essential element of your overall talent strategy (i.e., how you attract and retain the workforce you need to operate your business effectively). As the workforce continues to shift in terms of its composition (full-time, part-time, contingent, crowd), its demands, and its expectations, organizations have to be proactive if they hope to stay competitive. This involves purposefully and holistically managing the full scope of rewards offerings, which typically includes:
Source: Excerpted from the Total Rewards Framework, Bersin, Deloitte Consulting LLP, 2017
While the tax law changes may make it tempting to act quickly to pass along some of the savings to workers, they, and the business, will likely be better served by taking a step back and looking at the big picture of rewards in the context of the overall talent strategy.
Asking rather than assuming
As the workforce grows more diverse in nearly all respects (age, gender, location, employment mode), it’s natural that workers’ needs and preferences are growing more diverse as well. The rewards that might appeal to one segment may not appeal to another, and rather than assuming a reward will be well-received, employers should be actively seeking to understand what workers value: That’s as simple and as obvious as asking them.
Ask workers to weigh in on various rewards and use their answers to help guide your rewards strategy. With the right survey tools to help, this can be a very cost-effective and timely process with the potential for numerous benefits, such as:
Making workers feel valued and respected
Identifying current rewards that are under-performing (i.e., not valued, or not valued enough to justify their cost)
Uncovering opportunities to offer rewards that are both desirable and cost-effective
Demonstrating commitment to workers and being known as an employer-of-choice
Moving from a total rewards to a total relationships mind-set
Consider how workers, if asked, might choose to benefit from ongoing corporate tax savings beyond a one-time cash bonus. Perhaps they might prefer a contribution to a retirement account or to an HRA (health reimbursement account). Perhaps they might value a contribution toward their student loan debt. Or a gym membership. Or extra time off.
The point is that once you know what workers value, you can begin to tailor rewards so they both meet workers’ expectations and provide positive ROI to your organization. Given the disruption in work today and the challenge to transition to the future of work, there’s never been a better time to rethink designing and delivering rewards as independent pieces in a one-size-fits-all approach. Cultivating a more holistic, total relationships approach can be a powerful differentiator in attracting and retaining the high-talent workers you need today to continue to meet the challenges of tomorrow.
Michael Niciforo is a principal in the Human Capital practice of Deloitte Consulting LLP. He has more than 30 years of experience in administration, consulting, design, and implementation of rewards programs.
Garry Spinks is a managing director in Deloitte Consulting LLP, where he uses his more than 20 years of consulting experience to help organizations optimize their return on their human capital investments.
Naomi Bradley is a managing director in Deloitte Consulting LLP, with nearly 20 years of experience helping companies across a variety of industries design, deliver, communicate, and manage the financial and human resources aspects of total rewards programs.
Common goals for organizations that want to better respond to change, drive innovation, and position themselves for the future of work often include using more modern technologies to become more agile. Cultivating a culture that enables, supports, and contributes to these goals is a key success factor, one that technology itself is helping them achieve.
Technology and culture may seem like an unlikely match. How can something so concrete and technical apply to something so intangible that tends to evolve organically over time? The link between the two becomes clearer when you define culture as “the way we do things around here.” Organizations can consciously decide how they want to do things and how they want to operate. Technology then becomes a means for the organization and the people in it to act and get things done in those certain, desired ways.
Specifically, we’re seeing companies using technology to (1) change culture and (2) sustain and reinforce culture.
Technology in changing culture
As organizations strive to become more digital and agile, they are embracing technologies to be the mechanisms of the culture shift. Consider the use of SaaS-based HR systems for example. Business cases for moving HR systems to the cloud typically cited the drawbacks in current systems—clunky interfaces, the need for many workarounds, difficulty running reports, limited support for workforce planning, and the like. But one of the biggest (sometimes unspoken) drivers to move to the cloud was the demand from employees for modern-looking—and modern-functioning—tools. Employees increasingly want and expect a consumer-grade technology experience at work, similar to what they use in their daily life.
Today, the business case for changing old ways in favor of new technologies may also include propagating the desired culture. Technology is seen as the enabler of a more seamless employee experience and of the automation that simplifies routine tasks and lets people focus on what they inherently do better than machines—imagine, communicate, collaborate, and creatively solve problems.
Technology in reinforcing culture
As companies consciously acknowledge culture as essential to executing business strategies and achieving goals, they’re also deciding what kind of culture they want to have and using technology to reinforce it. For example, to support a culture of caring and concern for employees’ health and welfare, companies are adopting well-being platforms or specific apps. These can connect people with coworker cohorts as well as giving them information, nudges, reminders, and suggestions that support their physical and mental health.
Another example is the use of performance management technology tools to foster a culture of transparency and accountability. One of the downsides of people working remotely and using self-service platforms can be a breakdown in personal connections. When manager intervention is no longer needed to perform tasks, there can be a distancing in the relationship between managers and direct reports, and for that matter, between individuals and the bigger picture of team and organizational strategies and goals. So now we’re seeing performance management tools that help facilitate regular check-ins between managers and staff, even collecting and collating items or activities to serve as an agenda for one-on-one or team meeting. These tools also help evolve performance management beyond the traditional focus on annual reviews and make it a more active, ongoing part of the company culture.
Making it stick
Some situations naturally offer the opportunity to launch a cultural technology initiative, such as an M&A that joins two organizations together, a spin-off enterprise that presents a blank slate to build the desired culture from the ground up, or the appointment of a new CEO or a new market direction that ushers in an era of change. Culture change could also simply be seen as a business imperative, necessary to stay competitive and attract talent as an employer of choice.
Whatever triggers the technology adoption, that perennial must-have for virtually any type of organizational initiative to take hold and succeed—C-level buy-in and support—certainly applies. Senior leaders should visibly and vocally use the tools of the desired culture and be seen as active participants while encouraging other to do the same. Use of the technology may be mandatory, such as performance management tools, or optional, but with incentives offered to encourage participation, such as offering a gift card for reaching a milestone in a healthy-living app.
One of the potential advantages of being deliberate about culture (“the way we do things around here”) is the potential effect on engagement—“how I feel about the way we do things around here.” In a kind of virtuous circle, deploying technology to operate with more agility and transparency, and with overt regard for employee expectations and well-being, is likely to result in higher levels of engagement. This in turn fosters stronger focus on performance and commitment to helping the organization excel.
Christa Manning leads technology and service provider research for BersinTM, Deloitte Consulting LLP. In this role, she helps businesses align their workforce support strategies with the right third-party software and service partners and governance models to deliver functional capabilities and employee experiences that support productivity, engagement, and workforce efficiency.
Gary Cole is a principal with Deloitte Consulting LLP specializing in human resources transformation, technology strategy, and technology implementation. He leads Deloitte’s HR Technology Strategy practice and is an active speaker/blogger in the market on HR related technology trends.
Sonny Chheng is a principal in Deloitte Consulting LLP’s Human Capital practice. He has more than 15 years of experience working with clients across industries to develop and implement organization and talent solutions that deliver the business benefits of transformation efforts.
Organization performance, at its core, is about using your enterprise’s assets to maximize its potential to achieve goals. The current age of disruption presents new challenges, where forces have already dramatically impacted the talent landscape, likely disrupting your business model and radically changing when, where, and how work is done and who does it. Current HR capabilities may no longer be adequate for sustained performance in this disruptive, dynamic, and digital business and workplace environment. It’s time for a refresh.
Industries across the board are experiencing new competitors, new products, and new business models that are significantly changing the face of business forever. Customer expectations and buying patterns are changing, digital technology is here to stay, and the workplace has new expectations for work and careers. Many companies – and sometimes entire industries – are succumbing to disruption faster than before. The average lifespan of S&P 500 index of leading US companies has decreased by more than 50 years in the last century, from 67 years in the 1920s to just 15 years today.1
One constant in all of this disruption is people. Your workforce and talent have never been more important to ongoing successful performance—which means HR has never been more important. High-impact HR organizations are now expected to bring solutions that are focused on improving enterprise performance and productivity through people. This is becoming more challenging, and the need to meet that goal is driving leaders and HR to pause, pivot, adapt, and build new HR capabilities.
The new HR capability framework
A refreshed HR capability framework provides a foundation from which to elevate HR. The framework is based on research from Bersin – Deloitte Consulting LLP, The Global Human Capital Trends report that surveys thousands of leaders from 140 countries each year, and the collective knowledge gained through field experience across hundreds of organizations.
The framework identifies the HR capabilities needed for success in the modern age. These capabilities reside at the organization level and are a combination of processes, technologies, infrastructure, and talent required for sustained performance against business objectives.
The new HR capability framework is built on the foundation that, for HR to have a consistent impact on business results, the function must understand and embrace its new value chain and the new outcomes it can deliver. This means:
HR Designs strategic, customer-centric, digitally enabled, and data-tested workforce and talent solutions
HR Delivers workforce and talent solutions that use customer experience to drive engagement and productivity and enable leaders, managers, and the workforce to deliver on business results
HR Sustains its impact on business results by continually sensing trends, partnering with networks to crowdsource fresh ideas and innovations, making adjustments, and building capabilities
As shown below, this design-deliver-sustain foundation comprises seven critical capability groups with 21 capability elements that are used to measure and build capability maturity so HR can maximize its potential to achieve business outcomes.
Source: Deloitte Consulting LLP
The HR capability framework consists of familiar and newer capabilities that help shift and pivot HR from being “service provider” to “strategic business leader, providing measurable business impact”.
For designing workforce and talent solutions, the framework includes a shift to being:
Strategically valued by the business
Digitally mastered, taking full advantage of digital technologies, traits, and behaviors
Customer centric, designing with outcomes and customers as the target
Data enabled, providing validated solutions that help steer business strategy
For delivering workforce and talent solutions, the framework includes a shift to:
A renewed focus on engagement as the driver of an irresistible workplace that fuels people’s productivity, passion, and purpose
A new target of working on the business, measuring success by business results
A platform that enables meaningful interactions between leaders, managers, the workforce, and the organization’s customers to achieve the right business results in the right way so that customers experience value
And finally, for sustained performance, the framework includes a shift where:
HR extends itself, reaching out and forming partnerships inside and outside the organization that yield information and innovation
HR uses a full spectrum of voices and faces to build solutions, replacing a divide-and-conquer, siloed model with an integrated approach that combines the capabilities of HR with those of IT, finance, marketing, and other functions to treat the workforce as a sustaining corporate asset.
As organizations navigate this age of constant disruption for their businesses and workforce, HR is uniquely positioned to lead by shifting, building, and deploying a new set of capabilities, focused on business outcomes, using innovative practices and enabling technologies. The path to High-Impact HR includes making a series of Strategic Choices. Elevating HR capabilities should be a primary focus among the many choices.
Arthur Mazor is a principal with Deloitte Consulting LLP and the practice leader for HR Strategy & Employee Experience and Global HR Service Delivery. He collaborates with complex, global clients to achieve high business impact with a focus on transforming human capital strategies, programs, and services.
Gary Johnsen is a specialist leader with Deloitte Consulting LLP. He helps complex organizations design and deploy innovative HR strategies, HR operating models, and leads Deloitte’s HR Professional Capability Academy.
When three large employers announced they’ve partnered to upend how their employees receive health care, it was a wake-up call for many organizations to rethink the traditional boundaries for how and where they can affect change and drive greater value—not just for the bottom line, but also to help create better experiences for their workforce. The opportunity is immense: Opening the aperture on health care helps create the ability to drive enterprise value and reward shareholders at the same time as hitting the employee trifecta:
Derive greater value from every dollar of human capital investment
Provide greater value to the workforce
Demonstrate commitment to improving employee experience
This move signals that inaction is not a viable strategy, and many leading-edge companies will cross traditional boundaries to curate their employees’ experience while investing in and building human capital as an asset on their balance sheet.
In a world where tangible assets aren’t holding value and are not creating differentiation between winners and losers, human capital is enduring. Companies that win tend to build on the following concepts:
Human capital differentiates—It’s about value, not just driving down cost. Building the Human Capital Balance Sheet1 is about optimizing the value for a given amount of spend, and using that investment to drive efficient, effective returns.
C-Suite 3.0—Siloed executive leadership is a losing proposition—companies are positioned to win when executives team together. Powerful combinations of CHROs, CFOs, CIOs, and Chief Strategy Officers can see through intractable issues to leverage ideas from across the enterprise.
Partnerships and creative thinking—Think outside the four walls of your organization and get comfortable working with nontraditional partners, including other companies and potentially even competitors, to find better solutions. Doing so may create economies of scale, leverage better technology smarter and faster, or provide other values often unachievable if just left exclusively to one individual organization.
Health care is just one example of a human capital challenge that is sometimes considered an “HR” issue. However, this narrow thinking is limiting, because to really affect change, an issue as large as health care needs to be solved for across the organization—with leadership from the CHRO in partnership with the CFO and beyond.
Health care costs make up about 7.5 percent of total employee compensation2 or about $10,000 per employee annually3—easily adding up to billions of dollars for large employers. Executives getting off the sidelines and reaching out across silos to address these types of challenges is just the beginning of a shift we’re seeing for organizations to take a bolder, business-driven, balance-sheet approach to their decisions about optimizing human capital investments.
What do we mean by a “balance-sheet” approach? The Human Capital Balance Sheet (which we introduced in this post) is a way to gain visibility into how human capital investments can translate into value for the organization. Optimizing the Human Capital Balance Sheet involves taking a much more holistic and practical view of workforce investments than is typically applied—all to better understand the value of human capital spend and to optimize that value as a business asset. The Human Capital Balance Sheet concept provides opportunities to increase collaboration across the C-suite as leaders ponder human capital investment decisions.
Human Capital Balance Sheet optimization in action
Let’s consider the recent “ripped from the headlines” example: Three major employers decided that what’s available in today’s health care market was not working for them and have announced they are collaborating to build a new solution of their own. Initially, the new company they are forming will focus on technology to give employees easier access to high-quality health care with greater transparency and reasonable cost.4
We see this as a leading-edge example of companies trying to optimize their Human Capital Balance Sheet, even taking matters into their own hands to bridge the gap where the market is costly and inefficient. The reward is clear for this effort. Successful companies have the opportunity to derive greater value from their workforce investment and to provide greater value to their workforce, while demonstrating a commitment to improving the employee experience even as they work to reward shareholders.
A sign of the times
Today’s reality is that the workforce necessary to deliver business results is changing, and winning companies are adapting the makeup of their workforce (including individuals, robots, crowd) to build their products and deliver their services. A key component of this is rethinking, from the ground up, the most efficient and effective way to develop and motivate the workforce while managing risk in this new complex model.
The Human Capital Efficient Frontier5 is a tool to help guide the optimization effort. It’s a way to visualize the impact of human capital investments to better understand if they are worth the time, effort, and dollars or if those resources would be better served elsewhere.
Source: Deloitte Consulting LLP
The Human Capital Efficient Frontier can help companies by giving them the means to:
Evaluate workforce decisions and human capital investments across the dimensions of “How much value are we deriving?” and “How do we manage the cost and risk of the decision?”
Free up the constraints of outmoded delivery models to create opportunities for the C-suite to build solutions, within a company or across external partnerships, that deliver maximum benefit to the workforce while improving the ROI on spending.
Align company spend with employee preferences, using technology to truly understand what employees value and delivering that in a more customized manner, instead of the ”peanut butter” approach seen with “one size fits all” programs typical today.
Truly optimize their Human Capital Balance Sheet.
Where else might this happen?
We have now seen a great example of this in the health care space. Where else might this happen?
Compensation? Who will be creative? The basics of base salary, bonus and equity/ownership as options essentially haven’t changed in 100 years. Is there a fundamentally new way to reward employees for the value they create?
Retirement? Is the 401(k) model where employees bear risk for funding retirement really working for the workforce? What could replace it?
Diversity or professional development? Could we see a model where scarce talent is intentionally shared across companies as a development tool?
Staffing? What if a similar method of workforce sharing was used to meet demand at critical times or staff more efficiently all the time? Could this extend across companies that choose to partner together to share their best and brightest employees, while curating development paths that extend beyond what one company could offer?
In a world where the problems are increasingly large and complex, and the reward for being innovative is substantial (potentially changing the game on multibillion-dollar-spend line items), forward-thinking companies will likely come together and drive disruption themselves. They will identify problems and come up with solutions, breaking the mold of going it alone to solve them internally and moving to an external collaboration competition model. In fact, they have already started.
Robert A. Dicks is a Deloitte Consulting LLP principal and the leader for Human Capital’s CFO Services market offering.
Erica Volini is the US Human Capital leader for Deloitte Consulting LLP.
David Buck is a principal in Deloitte Consulting LLP and the national leader of the Actuarial, Rewards, & Analytics service line.
1 The Human Capital Balance Sheet is a trademark of Deloitte Consulting LLP.
AI. Automation. Machine Learning. Natural Language Processing & Generation. New technology is rapidly disrupting and transforming the nature of work and the identity of professions by enabling humans and machines to work together, side by side. A new breed of professional is rising to navigate this shifting landscape by embracing technology, leaving behind traditional tasks, and applying a uniquely human skill set to focus on higher-value, strategic roles. Enter the exponential professional.
The professional of today might assume that automation only affects nonprofessional workforce segments. Certified professionals such as lawyers, doctors, actuaries, and accountants may feel especially immune to these effects. However, exponential technologies are ushering in sweeping changes for professionals across all levels and industries.
Cognitive computing – Machines will analyze data sets, identify and apply new algorithms to process data, make decisions, and flag exceptions.
Process automation – Pushing a button and maintaining process will become a thing of the past
Image processing – Assessing hazards and risks such as determining if properties are made of stone or glass
Natural Language Generation – machines writing intelligent memos and communicating findings
Virtual reality can give professionals a better understanding of their colleague’s jobs. A call center representative could virtually follow people or processes, transforming their scripts into experience
Getting beyond fear
Professionals’ first reaction to realizing that technology can replace human tasks in their workplace may be fear—the fear of job insecurity coupled with anxiety over their place in the workforce. A look back at a major revolution of the past, the computer revolution, may help alleviate such concerns. During the computer revolution, bank usage of ATM’s exploded. However, instead of reducing the headcount of employed bank tellers, banks used the new technology to open more branches, which led to more jobs. From 1970 to 2010, the number of bank tellers in the United States increased from just under 300,000 to around 600,000.1 This widespread rollout also enabled tellers to take on more complex customer requests, such as new product inquiries.
While technology reduces the need for certain roles, it is often a catalyst for growth in other areas. Upon reviewing UK census data, Deloitte UK discovered that technological advances between 1992 and 2014 caused decreased agriculture and manufacturing employment that were offset by rapid growth in the health care, creative, technology, and business services sectors. The net change was a 23 percent increase in jobs.2 Additionally, there are countless other examples of jobs created in the last decade that are a direct product of technology revolution: mobile app developer, rideshare driver, social/digital media marketer, social media manager, data scientist, chief sustainability officer, drone operator, blogger. While each of these is new and different, each has roots in “old world” jobs with transferable skills: software developer, taxi driver, print marketer, publicist, actuary, environmental activist, pilot, freelance writer. Research suggests this pace of change is set to accelerate with nearly 65 percent of children entering primary school today predicted to end up working in completely new job types that do not yet exist.3 As such, the professional of today should recognize that just like the introduction of computers, the introduction of exponential technologies expands the frontier of opportunities for the business professional.
Just as robots changed the look and feel of a factory, new technologies and the digital revolution will impact the future of the workplace for many professions. For example, augmented and virtual reality will upend learning in the workplace by enabling learners to experience near real-world scenarios in the safety and methodical manner of a simulation.4 This is already being applied in the training of mining personnel where virtual environments can be used to build experience without the need to navigate hazardous environments.5
Similarly, finance professionals can harness cognitive data analytics technologies to automatically prepare and cleanse data, evaluate or identify drivers of results, and document findings. This will enable these professionals to focus their attention on higher cognitive activities.6 By replacing manual processes with machines, talented business professionals can focus on processing exceptions, interpreting and communicating results, and driving forward-looking strategic actions. Integrating machines with people and process can improve the quality of basic data processing, but can also significantly shift the strategic output capacity of any process by focusing talent on more strategic objectives.
A changing workforce
Technological advances are combining with generational changes that will disrupt how companies source talent—and even the very definition of an employee. Traditionally, companies have employed legions of full time, “on balance sheet” staff with set benefits and salaries. However, many companies have turned to alternative talent sources, such as crowdsourcing, to solve problems and create new ideas. A recent study by Harvard and Princeton economists showed that 94 percent of net job growth from 2005 to 2015 was in “alternative work,” or independent contractors and freelancers.7 As technology advances, more and more professionals are expected to join the gig economy, where they may negotiate short-term contracts, work for multiple employers, and diversify their project portfolio. The move to the gig economy is only partially driven by technology. The cofactor to technology is a Millennial mind-set shift toward the workplace. Millennials value work-life balance, flexible hours, ability to work from home, sense of meaning, and a variety of experiences.8 These values are often likely to be satisfied in an alternative work arrangement.
So, what are the anticipated implications for the professional of today? First, many tasks traditionally performed by humans (gathering information, computing results, and writing reports) will be performed automatically. This means that professionals can adjust their focus toward augmenting process with tasks that require uniquely human skill. Second, alternative work arrangements will bring about changes to companies’ organizational structures, operating model, and how professionals interact with their employers. Third, industry views on professionalism will need to evolve.9 Standards for how professionals leverage, trust, rely on, and interact with automated processes will need to be defined. This includes adapting employee training, which traditionally focused on creating technically sound individuals, and rethinking professional standards.
Let’s look at an exponential professional in action: an exponential actuary…
Uses Natural Language Processing to autogenerate reports before breakfast
Helps save hundreds of hours a year by relying on bots to automatically generate and QA data and perform analysis
Focuses efforts on high-value activities such as designing analysis and interpreting results
Exponential technologies are beginning to transform the workplace by efficiently and economically automating many human tasks and facilitating alternative work arrangements. These changes enable the rise of a new adaptive, innovative, and strategic professional—the exponential professional—assisted by and working with technology to create unprecedented value.
Next up: In the second post in this three-part series, we’ll discuss the expectations and responsibilities of the exponential professional.
Darryl Wagner is a principal in Deloitte Consulting LLP and the Global Actuarial, Rewards & Analytics Leader and US ARA Insurance Services Leader.
Caroline Bennet is the National Leader of Deloitte Actuaries & Consultants, the Insurance Leader for Deloitte Australia, and Leader of FSI Consulting, and is a member of the Global Deloitte Actuarial, Rewards and Analytics Executive Team.
Contributors: James Dunseth, Trent Segers, Wes Budrose, Nate Pohle, Ajay Parshotam, Mehul Dave, and Corey Carriker
With the reduction of corporate tax rates in the Tax Cuts and Jobs Acts of 20171, an important question is raised: Is now the time for firms to close any gaps between (1) their stated compensation philosophy and target market percentile competitiveness and (2) reality, which is often less?
Hundreds of competitive market analysis studies over the years have shown that it is common for certain functions, or entire organizations, to find actual market compensation competitiveness levels fall short of stated target percentiles2. The desire to close that gap is usually in conflict with tight salary budgets and limited funds beyond regular merit budgets.
Indeed, a rare after-tax income boost potential is being met with some executives asking, “If not now, when?” Analysts see the use of the tax reduction as an indicator of firms’ priorities and strategy, underscoring even further the importance of real and perceived impact that will be compared and contrasted across peer firms in each industry. This opportunity may be very timely, as recent data3 indicate a tightening labor market and wages that are finally on the rise in a meaningful way, after several years of inflation-adjusted stagnation.
Implementation of this solution could take many forms. It could be applied in the form of an increase in the merit budget for the entire organization, or for creation or enhancement of a market adjustment budget, applied to select employees or jobs. It could also be used to target specific critical workforce segments (such as engineers, IT professionals, or nurses) that often demand a higher level of market competitiveness than the general employee population.
In recent years, compensation trends have focused on increasing annual incentives or bonuses because they don’t add to the organization’s fixed costs and can adjust to annual firm financial performance. A potential downside of this is perceived neglect around base salary adjustments, making the current opportunity a chance to address this perception, especially given the fact that the corporate tax cuts are permanent, unlike the individual tax cuts, which are set to expire in 2025.
The preferences of today’s workforce go beyond traditional rewards. Workers are looking for a relationship with an organization that offers a personalized, flexible and customized experience, set on a firm foundation of compensation and benefits, differentiated by other programs, including recognition, career development, and a holistic approach to wellbeing.
With the rapidly evolving nature of the future of work, the importance for employers to differentiate themselves as an irresistible place to work, and the stewardship necessary to manage the balance sheet, companies now need to pivot to a more strategic view of rewards.
Smart, forward-thinking corporations wanting to remain competitive in the talent marketplace today will give this opportunity careful consideration.
Gregory Stoskopf is the leader of Deloitte Consulting LLP’s National Compensation Strategies Practice and serves on Deloitte’s Global Rewards Executive Committee. He is a frequent speaker and author on compensation and talent topics within the HR profession.
The fast pace of change and development in learning technology presents an ongoing challenge for Learning & Development (L&D) functions. Choosing from myriad technologies, figuring out how to pilot and implement them, working with vendors, training L&D staff and the organization’s employees on their use, curating content—all aspects must be considered and managed. A governance framework can help bring order to this crucial and complicated L&D mandate while also strengthening and sustaining organizational performance.
Empowering and educating a company’s talent is a differentiator for attracting and retaining talent—one way to stay ahead of competition. Being able to bring the right learning content to employees’ fingertips when they need it is critical, not only to keep workflow moving but also because skills in today’s rapidly evolving world have a shelf live. Learning and content curation technologies can be a helpful supplement to internal L&D training efforts, but can quickly get out of control. Too many different technologies from different vendors in use by different parts of the organization is a recipe for inefficiency and costly overlap.
This is where governance comes into play. Governance is a framework that helps support and enable high-quality, consistent decision making for processes and systems, and provides guardrails in a fast-moving environment. It helps people understand who needs to do what, eliminates confusion and duplication of efforts, and breaks down the decision-making process to leverage the right people at the right time for smart use of leaders’ time. In this learning context, it helps companies efficiently procure, curate, and manage learning content so it aligns to business strategy, engages employees, and ultimately contributes to organizational performance.
How do you know when governance is needed?
Market demands show learning gaps that should be filled, whether something as straightforward as a need to upgrade existing learning technology or as complex as a learning transformation.
Decision making around learning is unclear.
Content curation is being launched or has become unwieldy.
Spotlight on content curation governance
The potential benefits of using automated curation are high, as it allows for nimble and responsive learning content that meets end users’ needs. People now expect curated content on personal technology apps, and those expectations don’t change when learning in a professional setting. That said, content curation can quickly get out of control if there are no controlling mechanisms in place— you could be facing the Wild West of technology-curated learning content. Governance can help curation in several ways:
Quality—To keep curated content fresh and applicable, it should be regularly culled and vetted. Governance provides a protocol for meeting these criteria, helping to keep content relevant, updated, and flexible.
Business alignment—Governance confirms that content, whether sourced internally or externally, is business aligned, and that any content end users are curating on behalf of the business is the right content.
Tech leadership—The vendors you rely on for curation should be integrated into the technology ecosystem. Implementing governance processes and including the right people in governance supports this integration. It also allows for more effective vendor management, helping to avoid situations where the same vendor is used in multiple places in the organization or various vendors are used for the same purpose without considering efficiency of scale or cost.
Getting started: When and how
If you’ve identified a need for governance and don’t have a formal governance framework in place, the time to develop one is now! If you’re already in the middle of a project, prioritizing the creation of a governance framework can enable better decision making in the future.
In our experience, governance projects flow more smoothly when you:
Plan your strategy—Develop a process that considers all aspects of learning and the technology that will enable learning. For example, you may not have a learning curation strategy yet, but understanding how curation could be incorporated into your organization will set the stage for your future technology needs.
Keep it simple—Governance should support efficiency, not hinder it. Ask how governance would improve your current situation. Your answers can help reveal current bottlenecks and understand where governance can have the most impact.
Limit decision makers—Designate ONE final decision maker or a small group of decision makers.
Socialize and gain buy-in early—Determine the right people to involve, and get buy-in from all levels. Consider people from L&D, budget owners, daily operations/support teams, and members of IT, finance, and HR, for starters.
Learning technology is evolving rapidly, both in terms of learning experience platforms and the content that lives on them. Many learning organizations are struggling to decide the right course for their business and learners’ needs. A governance framework can enable you to keep pace with change and incorporate new technologies while meeting the needs of your learners and your organization’s business strategy.
Amy A. Titus is a managing director, Organization Transformation and Talent, for Deloitte Consulting LLP. She is the co-dean of Deloitte’s Chief Learning Officer Forum and is responsible for helping to bring talent, learning, organization improvement, and change solutions to her clients.
Jen Behrens is a manager, Organization Transformation and Talent, for Deloitte Consulting LLP.
Michelle Weaver is a senior consultant, Human Resource Transformation, for Deloitte Consulting LLP.
Considering how much company spend and risk is tied to employees, it’s surprising that organizations seldom use the same rigor for human capital investments as they do for business investments. All too often, the question we hear business leaders ask is, “How do I reduce human capital costs?” What leaders should be asking is: “How do I ensure that I get appropriate value from the money I’m willing to invest in my people?”
Part of the challenge is that the C-suite looks at human capital investments through different lenses. CFOs consider things like the ratio of spend to value, measuring ROI, and increasing the value of human capital as an asset. CHROs are concerned with ensuring the organization has the right talent for current and future business strategies and is seen as an employer-of-choice. The Human Capital Balance Sheet is a way to reconcile these perspectives, gain visibility into how human capital investments can translate into value for the organization and provide opportunities for increased collaboration across the C-suite.
One of the reasons companies can have trouble optimizing human capital investment is they start with a limited view: Human Capital Investment = Labor Spend = Compensation & Benefits. This overly simplistic equation misses the mark in several ways:
It fails to consider all of the facets of the workforce that drive value.
Compensation and benefits barely scratch the surface of what it costs to drive productivity.
It’s not risk adjusted, so it makes it look like all costs and risks are equal.
An expanded view
Consider how the very definition of an organization’s workforce has changed significantly over the last 10 to 15 years and will likely keep evolving as the open talent economy matures and the future of work unfolds. In addition to full-time payroll employees, the workforce mix now includes a range of part-time, contingent, gig, outsourced, crowdsourced, and even robot members. All of these workers—and how and when you use them, compensate them, reward them, develop them—should factor into discussions of human capital productivity and value.
Taking this broader view can help you evaluate the effectiveness of the human capital programs you have today. Many organizations have a range of programs, practices, and point solutions that were introduced over time and haven’t been evaluated individually or holistically to determine if they are (1) adding value and delivering meaningful ROI and (2) the best use of the limited pool of investment dollars. Analytics solutions are available to help in this effort and can reveal opportunities to not only save costs but also improve the market-competitiveness, employee perceptions, and overall effectiveness of your human capital offerings.
Navigating the Human Capital Efficient Frontier
The idea is to be able to make human capital decisions using the same business-driven rigor typically applied to other investment decisions the business makes. Using this approach, you start to reach what we call the “Efficient Frontier”—a way to approach human capital decision making that directly links workforce investments to value as you define it for your organization and specific functions. For example, a business might look at value in terms of revenue or share price. A health care provider might look at patient outcomes or quality metrics.
The Human Capital Efficient Frontier enables you to link an (expanded) definition of the workforce, a definition of investment and labor, and a definition of the value you get from your workforce, either across the board or in certain business units or functions. Then, workforce investment decisions are measured against that value.
To capitalize on the Efficient Frontier, you’d first eliminate programs that are obviously not driving value. Then you could begin to look at how to strategically reallocate the money saved to focus on programs that increase the value of human capital as a balance sheet asset.
Source: Deloitte Consulting LLP
Optimizing the Human Capital Balance Sheet
Taking a balance-sheet approach to understanding all the dimensions of your human capital assets is a way to both build human capital as an asset and reduce inefficiency in labor spend. When the Human Capital Balance Sheet is optimized:
Wasteful spend is substantially reduced or eliminated
The cost of programs that drive minimal value are reduced or eliminated
Investments in labor are value-driven and clearly linked to an appropriate measure and rate of return
Inherent risks are understood and factored into decision making and expected outcomes
Decisions are informed by the business strategy and market conditions
As you’ll notice, these optimization criteria and outcomes ring true for virtually any area of the business, meaning human capital investments can (finally) be viewed and measured in business terms. This gives all of the organization’s leaders—whether in HR, finance, IT, operations, business units—common ground and a common language to evaluate human capital decisions as they do other business decisions.
We will be examining the elements of the Human Capital Balance Sheet in more detail in follow-on posts, as well as featuring it in an upcoming Dbriefs webcast. Stay tuned for more insights on this new perspective for balancing workforce investment, risk, and value.
Robert A. Dicks is a Deloitte Consulting LLP principal and the leader for Human Capital’s CFO Services market offering.
Michael Fuchs is a Deloitte Consulting LLP principal focusing on optimizing the design and delivery of Human Capital programs that enable organizations to achieve their business goals and objectives.
Brandon Smith is a senior manager in the Human Capital practice of Deloitte Consulting LLP.
Total Rewards leaders (Compensation & Benefits) are increasingly pressured from both inside and outside the modern organization. Long-time experts in this profession are accustomed to balancing the needs of the workforce, business, and regulators. Now more than ever there are new challenges for Total Rewards professionals to get ahead of – or risk being caught off guard.
In July and September, we posted two articles about how traditional HR centers of excellence can move from siloed “centers” to design-led “communities of expertise.” The first article introduced and defined the Community of Expertise approach as part of the High-Impact HR Operating model. The second described how CoEs can drive increased business impact and play an instrumental role in HR’s creating sustainable value. Here, we’ll build on these ideas and focus on the disruptions and opportunities facing a specific CoE: Total Rewards.
Total rewards based on worker preferences vs. the external market
The success of any Total Rewards offering has traditionally been measured based on whether it is “competitive” with an organization’s peers and relevant labor markets. Professionals in this field are known to spend countless hours collecting and analyzing market data, which is often frustratingly out-of-date and reflects only those reward programs best measured in concrete dollars and cents. Some may push to outpace the market, while others are comfortable to lag a bit behind, but their focus is consistently outside the organization.
Compare that to the results we see in Deloitte’s 2017 Global Human Capital Trends report, where nearly 80 percent of surveyed executives rated employee experience as very important (42 percent) or important (38 percent), while only 22 percent reported that their companies are excellent at building a differentiated employee experience. At the same time, many organizations are coming to grips with increasingly vocal populations of employees who expect more transparency, more choices, and more say in future total rewards offerings. Rather than focusing on competing externally in the market, organizations should consider responding to their employees’ desire for a personalized and meaningful experience.
From Total Rewards to Total Relationships
The preferences of today’s workforce go beyond traditional rewards. Workers are looking for Total Relationships with organizations that offer a personalized, flexible experience that feels tailored to the individual. As a result, organizations are working to foster a Total Relationship, with rewards that are differentiated based on worker expectations and tied to the business priorities and success outcomes. Shifting from traditional “compensation & benefits” to “Total Rewards” – and now to “Total Relationships” demands re-positioning rewards to consider a broad suite of programs beyond compensation and typical benefits to include recognition, career development, wellbeing and more. Creating Total Relationships embeds rewards as a critical component to shape the experience for all of an enterprise’s workers – employees, gig workers, and alumni.
Fortunately, Total Rewards professionals are uniquely positioned among many in HR to meet this challenge. By applying analytical capabilities to employee preferences (e.g., using conjoint analyses), they can help leadership understand not only what is offered more widely “out there” in the market but also what combination of programs would best drive them toward becoming a Simply Irresistible organization.
De-linking pay and performance?
The reinvention of performance management is a well-published and discussed topic. Many organizations are experimenting with more continuous performance management practices – some with performance ratings and some without ratings at all. By comparison, very little research has been conducted on how organizations plan to adapt their compensation plans to these new approaches and still maintain a “pay-for-performance” strategy. The Cutting Edge Performance Management study from the Center for Effective Organizations indicates a missed opportunity for total rewards professionals to demonstrate their expertise and value to the business1. This survey of 244 organizations shows that, “Rewards leaders are playing a secondary role in the adoption and design of cutting edge practices” with only 39 percent being “heavily involved.” In order to deliver on employee experience, total rewards and performance management together must drive the employee-centric approach.
More important than whether ratings are used or not is one of the underlying reasons organizations are redesigning performance evaluations in the first place: the changing nature of work. The way we work is going through a dramatic shift, and “the need to align goals, provide feedback, and coach for performance is real-time, continuous, and multidirectional”, as mentioned in Deloitte’s 2017 Global Human Capital Trends report. As ways of working rapidly are rapidly changing, workforce and enterprise expectations around rewards are changing as well. Total Rewards leaders are quickly finding a need to even more closely link with business leaders and the voice of the workforce to address the emerging and rapidly shifting priorities with solutions that drive sustainable organizational performance.
To best address these impending disruptions, Total Rewards leaders should examine their priorities, how their teams are organized, and where they spend the majority of their time. Three key changes today could help add more value in the coming year by moving from “how we’ve always done it” to High-Impact:
Ask your employees: Understanding how rewards are viewed within your organization will open up a host of new insights and potential for improvements. Applying analytical skills on your team to help with this effort, combined with some help from marketing or consumer research teams can illuminate insights and open new possibilities about how to reconsider rewards programs.
Define your rewards brand: Establishing a vision from the perspective of how employees, managers, executives, and other groups like gig workers experience their rewards and bring new life and intention to the role rewards play in your organization. A brand mindset can help focus on how rewards are offered with linkage to the broader employer brand rather than only focusing on what rewards are offered.
Help drive team performance: As workers increasingly accomplish their jobs by operating as networks of teams, elements of total rewards and organizational performance are intersecting in different ways. Working with a business leader or a small team to define and reward success on an important initiative can provide opportunities to test new combinations of rewards strategies and approaches to enhance performance of teams while redefining the role of Total Rewards in your enterprise.
Creating or enhancing your organization’s Total Rewards Community of Expertise is likely to follow a somewhat unique path based on your starting point, business priorities, and workforce expectations. The challenge of driving towards Total Relationships demands rewards professionals pivot their focus, upgrade capabilities, and engage in new ways to play their important role in this shift.
Arthur Mazor is a principal with Deloitte Consulting LLP and the practice leader for HR Strategy & Employee Experience and Global HR Service Delivery. He collaborates with complex, global clients to achieve high business impact with a focus on transforming human capital strategies, programs, and services.
Chad Atwell is a senior manager with Deloitte Consulting LLP. He focuses on how Total Rewards can best be designed and delivered to prioritize employee experience and drive sustainable organizational performance.
Jasom Flynn is a principal with Deloitte Consulting LLP and the practice leader for Total Rewards, covering pension, healthcare, compensation, M&A, and retirement provider services. Jason has more than 20 years of experience helping companies across a variety of industries design, deliver, communicate, and manage the financial and human resources aspects of total rewards programs.
1Ledford et al. “Cutting Edge Performance Management: What about Rewards?” CEO Working Paper Series: CEO Publication: G16-05 (672).
Often, point solutions don’t get to the core of the gender divide, even in one of the most innovative and progressive industries. What could it take to help create an environment that the new-age woman tech leader can thrive in?
Gender diversity in the technology industry continues to be a rampant and highly public issue in today’s hyper-connected and volatile economic, socio-political, and global business climate. Various tech giants1 are being called on to answer to their employees, boards, and investors after highly publicized controversies have surfaced in the media.2 Companies such as Facebook have created and funded programs that address gender diversity and drive transparency, yet have experienced marginal improvements.3 Why the perennial problem? Because organizations are not addressing or ‘uncovering’ the core of the issue. Point solutions, diversity training, and women’s programs alone are not enough to move the dial. Organizations should look beyond point solutions and consider taking bold, targeted actions to address the biases and barriers that exist for women across the talent life cycle.
The business imperative
The 2017 Deloitte Global Human Capital Trends: Rewriting the Rules for the Digital Age surveyed over 10,000 HR and business leaders, revealing that over two-thirds (69 percent) of respondents consider an inclusive culture with a diverse workforce and brand an organizational imperative. Research finds that gender diversity leads to higher performance, including increased profitability, return on equity, higher ability to innovate, and higher invested capital performance.4
Yet, the gap in workforce equality is widening. In tech, women account for just under one-fourth of the technology sector despite the fact they comprise about half of the available overall labor force.5 In leadership ranks, only 28 percent of executive, senior officer, and manager-level positions are women.6
Deloitte is often asked about building specific women leadership programs, sponsorship campaigns, or network groups to address this gap. These solutions alone do not always work. Companies can identify high potentials, develop them, and create mentors for women, but if those companies put them in an environment where they are not valued or accepted, why would they stay? Data tells us that they don’t.7
So, what can organizations do?
Invest the time to understand and address the real issues within your organization head-on. Here are a few ways to consider getting started:
Level-set: Put an honest mark on the current state of diversity and inclusion in your organization. Objective assessments and talent data paired with interviews and focus groups can give you an honest baseline from which to drive true change.
Target interventions: Implement immediate and long-term solutions to help your leaders of today become the inclusive leaders of tomorrow. An immersive lab experience,8 with a knowledgeable design person, can map out the talent experience of a company and identify the likely impacts on gender across the talent life cycle.
Create accountability and transparency: Leverage analytics tools such as Business Outcome Modeling that enable continuous measurement of key inclusion performance indicators. Organizations can drive leadership accountability by demonstrating the importance of diversity and inclusion goals in generating positive business outcomes.
Develop and activate leaders: Change starts from the top. Being an inclusive leader is a muscle that should be built and exercised at all levels to create systemic change. Inclusion lab experiences can help people at all levels understand how their own biases may impact talent decisions and business outcomes.
Make it digital: Put innovative technologies and tools in place to enable decision making and practice reactions. Today, many recruiters and hiring managers have tools to help eliminate potential biases they may have. An example today is a program that anonymizes resumes by removing names, gender identifiers, and even the language in the job posting itself to maintain objectivity.
Improve talent development programs: Build inclusivity into all milestone programs, training, and onboarding to continue development throughout.
Grow a pipeline of women leaders: Look within the organization to identify, support, and sponsor the future—supporting high-potential female employees in their careers. Empower individuals at all levels to help unite and energize future women leaders.
These layered issues often benefit from an outside perspective. Organizations can start by engaging leaders in an immersive Inclusion Strategy Lab to help uncover the issues of today and work together to identify targeted opportunities and prioritize the actions that matter most to them.
Dana Swanson Switzer is a senior manager and leader in Deloitte Consulting LLP’s Human Capital practice focused on technology clients and the Digital Organization. She provides advisory support for leaders transforming their organization, including talent and leadership development, culture, and strategic change.
Jasmin Jacks is a manager in Deloitte Consulting LLP’s Human Capital Practice, with more than eight years of experience in designing and delivering targeted talent, D&I, and HR strategies. She provides clients advisory support on the development of inclusion and talent strategies, D&I current state assessments, and inclusive leadership experiences. Jasmin is the Sales Lead for Deloitte’s D&I Center of Excellence.
Jessie Reese is a manager in Deloitte Consulting LLP’s Human Capital practice, focusing on leadership development, D&I, and enabling culture transformation. With a start-up upbringing and eight years in consulting, Jessie specializes in identifying cutting-edge leadership solutions that drive business results.