Q&A: Reward Systems and Optimization in Workplaces by Mittal Nagda

Question: How did you get interested in rewards within HR, and how did you transition from HR operations to focusing on compensation and benefits?

Personally, my journey into rewards began in an HR generalist role, where I managed payroll and initiated various rewards and recognition programs.

Rewards play a significant role within HR, as it requires understanding both the human aspect and the numerical side to be effective in enhancing organizational performance.

As I progressed into HR business partnering, I found myself drawn to projects related to compensation and benefits.

Despite not having a specific background in rewards initially, my interest and willingness to learn led me into this field. Over the past five years, I've explored various aspects of rewards and gained valuable insights and experiences along the way.

Question: How do you define rewards for someone unfamiliar with the concept, and what is their scope?

When we talk about rewards, it's not just about money. Sure, cash is easy to see and it motivates many people, but rewards go beyond that. Think of rewards as a holistic package a company offers you to do your best work and encouraging you to excel.

There are five main parts to rewards:

1. Cash Compensation: This includes your salary - fixed and variable and any bonuses you might receive. Variable salary often depend on your performance or how well you align with the company's values and goals.

2. Long-Term Incentives: This includes both and cash and equity, equity being the more prevalent mode. Equity provides an a share in the company's success. If the company does well, you do too. It's a way for you to benefit from the company's growth.

3. Benefits and Perks: This covers everything from health insurance to fancy perks like club memberships, housing allowances. There's a lot of room for creativity here, and companies often try to offer unique benefits to attract and retain talent.

4. Career Growth: This involves focusing on providing opportunities that align individual aspirations with company goals. Promotions, job rotations, key assignments all can be part of career growth. It's about making employees feel valued and giving them room to grow in your career.

5. Recognition: Celebrating milestones is a small but very significant part of engaging an employee. Recognitions can be performance, behaviors or tenure based and showcase what organizations value.

So, when we talk about rewards, we're talking about more than just a paycheck. It's about creating an environment where employees feel valued, motivated, and empowered to do their best work.

Question: What is the co-relation between motivation and rewards?

I found two interesting theories about motivation. One suggests that people often need rewards from outside sources to push themselves because they may not naturally feel inclined to work harder.

The other theory proposes that people are driven internally to do well and seek acknowledgment in social situations.

However, relying too heavily on rewards can sometimes have negative effects, as it might start to be expected rather than inspiring. It's crucial to find a balance in the reward system.

Simply offering money without chances for advancement or giving perks without a fair salary won't be effective. Similarly, only offering company shares without cash won't address the problem either.

A good rewards package should cover all bases, including fair pay, perks, long-term incentives like shares, opportunities for career growth, and recognition. This comprehensive approach ensures that employees feel appreciated, motivated, and have avenues for self-improvement.

How companies handle rewards varies. Some companies may tap into every aspect of rewards while others might only focus on cash and benefits. Maturity of the organization and HR practices both determine which way the company might sway. It's about finding the right balance and leveraging rewards to bring the best from your workforce.

Question: Can we create a reward system that keeps people motivated to move forward without becoming complacent or falling behind?

The main idea is to find a good balance between giving rewards and motivating employees without it becoming an expectation

• Knowing What Motivates People: Everyone is different. Some people need stability while some others may need upgrade every few years; some respond well to clear consequences, while others do better with rewards and praise. Likewise there may be some who are focused on fixed pay, while there are others who like to take risk and want to maximize their earning potential with higher variable component or equity in their rewards structure. So, we should tailor our approach to what works best for each person. It is important to determine their anchors and position your offering which at the least touch upon these anchors if not completely aligned.

• Understanding Different Cultures: Cultures drive behaviors. Both individual’s background and company culture will determine the underlying acceptable behaviors. Same action might work differently depending on where you are. What's very generous in one place might be hygiene in another. So, we need to be aware of cultural differences when deciding how to handle things.

• Looking at Consequences Differently: Instead of thinking of consequences as punishment, we can see them as natural outcomes when someone doesn't meet expectations. This way, it's not about being a "bad" performer but more about meeting goals and improving.

As someone responsible for rewards, the focus should be on creating opportunities for growth and aligning rewards with performance. There should be clear thresholds, and if someone consistently falls below them, they may need to reconsider their fit within the organization.

Overall, it's about creating a balanced reward system that motivates individuals to excel without instilling fear or negativity.

Question: In what context can a gamified system effectively create team accountability without resorting to pay cuts as penalties?

When discussing the implementation of gamification within a team's dynamics, it's crucial to understand its suitability and limitations.

Gamification proves advantageous in areas such as recognition and learning, where it instills a sense of competition or accomplishment.

However, aspects like career growth don't necessarily need gamification; they should evoke intrinsic motivation and personal satisfaction.

Where teamwork compensates for individual slack, it's crucial to create a culture of collaboration and equitable contribution. Rather than focusing solely on penalizing those who slack, it's beneficial to recognize and appreciate the efforts of those who pick up the slack. By doing so, you reinforce positive behavior and discourage repeating negative actions.

It's also important to recognize that occasional lapses in performance may stem from personal challenges, and it's essential to support team members through such times.

Instead of solely penalizing, acknowledging the team's collective effort and resilience can create a positive, supportive environment—a win-win situation for all involved.

Question: What are the most common mistakes HR professionals make when it comes to understanding rewards and compensation?

One of the common mistakes I often notice when discussing rewards and HR is the misconception that rewards only refer to cash compensation. It's not just about the money; it's about looking at the bigger picture.

Many people tend to have a short-term mindset, thinking that if someone has a competing job offer with a higher salary, the only solution is to match that offer. However, there are few who consider alternative approaches, such as focusing on the individual's growth and development over time.

I often find there's a disconnect between how rewards professionals approach the issue and how those unfamiliar with rewards think about it. It's essential to broaden our understanding beyond immediate financial incentives.

Question: When should a company start thinking about incorporating rewards into its culture?

The best time to start incorporating rewards into your company culture is early on in your journey. However, you'll face more challenges if you're not fully prepared to implement it.

Factors like company size and maturity influence the feasibility of introducing reward elements such as equity.

In early-stage companies, it can be tricky because you might not have all the necessary frameworks in place, like proper job leveling or banding. Even if you have the intention to promote people and help them grow within the organization, you might not do it effectively due to operational constraints.

Question: What strategies can be used to effectively communicate an employee's growth in relation to rewards?

In communicating an employee's growth in terms of rewards, it's crucial to go beyond mere salary adjustments.

Appraisal letters should have a holistic view of progress, spotlighting advancements such as promotions, job rotations, and lateral movements within the organization.

Recognizing achievements, whether through spot awards or annual accolades, underscores the broader spectrum of growth beyond financial remuneration.

Moreover, facilitating access to premium certifications empowers employees to enhance their skill sets and accelerate their development. These initiatives signify the organization's commitment to investing in its workforce, reinforcing the message that rewards extend beyond monetary compensation.

Question: How do people's experiences of growth differ with and without a rewards system, and what distinguishes these approaches?

When companies operate with a rewards philosophy, they tend to tie in various initiatives and investments made in employee growth providing good visibility for the employees. In contrast, those without such a system may experience more fragmented and isolated instances of advancement.

In companies with separate teams handling rewards versus those with integrated total rewards approaches, the latter typically offer a more holistic view of growth opportunities. Total rewards systems communicate to employees the interconnectedness of their efforts with organizational success, fostering a sense of purpose and motivation.

In fragmented systems, advancements such as promotions may occur without employees grasping the broader implications. They might miss out on understanding how their tenure or achievements unlock additional benefits.

On the other hand, a total rewards system illuminates the cause-and-effect relationship between individual actions and consequent benefits. For instance, repeated promotions might lead to the receipt of higher equity, highlighting the recognition of one's contributions.

A total rewards approach creates transparency, ensuring that employees comprehend the rationale behind organizational decisions and recognize their role in driving growth.

Question: What are the primary ways through which individuals can experience growth within a total rewards system?

When everything is aligned, like in career development, and people understand what they need to do to progress, it makes a big difference.

For example, if a company has a clear fast-track promotion track as part of its total philosophy, employees know what steps to take to advance. This clarity boosts satisfaction and motivates individuals to put in more effort, compared to situations where advancement seems random or unclear.

It's all about understanding what drives and motivates people.

Question: Can you explain the cost optimization aspect of total rewards?

In the absence of a total rewards approach, many efforts made by companies focus only on cash. This was the case for us before we shifted to total rewards.

It's a mindset change where everyone, from HR to managers to employees, needs to understand the overall investment being made in the employee rather than just looking at isolated factors.

1. Broadened Options: When you consider total rewards, you see that the company is contributing in five areas, not just two. This broadens the options for employees and demonstrates the value the company adds to their lives.

2. Cost-effectiveness: Offering additional benefits like employee wellness programs or financial literacy initiatives doesn't always require significant financial investment but can greatly impact employee satisfaction.

3. Optimizing Spending: Total rewards allow us to optimize spending on cash while still providing value to employees. In a tough year, we might give a smaller cash increment but ensure other avenues for employee growth and support remain open.

This approach may cost less but still results in satisfied employees, unlike simply giving larger cash increments without additional support.

Question: What are the main challenges in implementing total rewards?

Implementing a total rewards strategy effectively means overcoming challenges to make sure employees feel valued and engaged:

1. Maturity of HR Practices: For being able to implement a Total Rewards strategy to its full potential, there are certain pre-requisites around process and practices followed. For example, having well-integrated processes for performance and compensation, clear definitions for segmenting the workforce (could be based on performance, potential, criticality, longevity, expertise etc), a defined career framework for promotions and progression. When your performance evaluation and career progression have clear correlation with the rewards outcomes, employee realize the investment made by employers in their growth. Likewise when the organization reaches a certain stage of maturity and scale, it can have levers like custom benefits programs meeting employees where they need them. For instruments like equity to work, organizations should be able to demonstrate the growth in share price, provide occasional liquidity and so on. When an organization has put together scalable and sustainable practices around each of the components of Total Rewards, articulation, implementation and thereby communication becomes admissible to the workforce.

2. Customization and Personalization: A big challenge is creating rewards that suit each individual's preferences and needs. This means moving from one-size-fits-all benefits to personalized packages that resonate with employees.

3. Demonstrating Value: It's also important to show the real value of rewards beyond just money. This includes perks, opportunities for growth, and working with talented colleagues, which might not always be easy to measure but are crucial for keeping employees happy and loyal.

4. Alignment with Employee Preferences: Rewards should match what employees want to be meaningful. This could mean giving them choices in their benefits, or different opportunities to grow in the organization. A successful strategy lets employees choose what fits best with their interests and priorities.

5. Effective Communication: Communication is key. Even the best rewards plan won't work if it's not communicated well. It's important that employees understand the rewards philosophy and that managers can share the message convincingly.

Tackling these challenges requires careful planning, clear communication, and a deep understanding of what employees want and need.

Question: What advice would you give to HRs who want to establish an effective reward system in their workplace?

For HR professionals looking to establish a robust reward system, I suggest taking an incremental approach. Rushing into major changes may not be sustainable in the long run. Instead, focus on making steady, lasting improvements over time.

Ensure that your reward system is designed for long-term success rather than quick fixes. Consistent progress and value are essential for employees to fully appreciate the system.

While it's acceptable to make adjustments as needed, avoid making sudden, drastic changes that contradict your overarching philosophy.

Keep your long-term objectives in mind and introduce changes gradually. This allows employees to witness steady improvements, increasing their likelihood of embracing and valuing the holistic rewards approach.

Question: What's next for rewards beyond cash, as they embrace recognition and benefits? What's the next big change in reward systems?

I think as times change, the needs of employees also change. While money was once the primary focus, today people seek more than just financial compensation. They desire benefits, recognition, and flexibility in their jobs.

The COVID-19 pandemic highlighted this shift as many realized the importance of flexibility, such as the ability to work remotely or set their own schedules.

As the workforce evolves, so do the rewards. Employee stock ownership plans (ESOPs) have gained popularity among startups, offering employees a sense of growth and ownership.

In the future, flexibility will likely remain a priority, especially with the increasing prevalence of remote work. Additionally, the gig economy may continue to grow, presenting challenges in keeping freelancers engaged and productive.

To create a work climate where employees thrive, it is important to understand employee values and modify the rewards system accordingly.