The role of rewards in enabling organization Innovation

Transcription

1 The role of rewards in enabling organization Innovation May 2015 WorldatWork Total Rewards Conference Presenters Tom McMullen Hay Group Chicago Dow Scott, Ph.D. Institute of Human Resources and Employment Relations Loyola University Chicago Erik Larson Hay Group Chicago

2 About Hay Group Hay Group consults with 9,000 clients worldwide in a wide variety of areas, including: Organizational effectiveness Managerial and executive assessment Compensation and benefits Performance management Executive remuneration and corporate governance Employee and customer attitude research 86 Offices in 48 countries 4,000+ Employees worldwide 10,000 International clients 3 About Dow Scott Dow Scott, Ph.D. is a Professor of Human Resources in the Quinlan School of Business Administration at Loyola University Chicago and President of Performance Development International; a management consulting firm. Dr. Scott s consultation and research focuses upon: Compensation and incentive pay Attendance improvement Team and HR development Recruiting and staffing systems HR program evaluation Performance Development International, LLC PDI is dedicated to helping our clients create a competitive advantage through people. We are committed to providing quality and personalized service. We support our clientele through: Customized evaluations and assessments of specific HR strategies, policies and programs. Development of state of the art customized HR programs and high performance organizations. Employee involvement at all levels, thereby fostering commitment and accountability for results. Linking HR programs to organizational performance. 4 2

3 Background Innovation mandate Conference Board identifies top CEO challenges: Rank Human Capital Human Capital Human Capital 2 INNOVATION Customer Relationships Operational Excellence 3 Customer Relations INNOVATION INNOVATION 4 Operational Excellence 5 Sustainability Operational Excellence Corporate Brand and Reputation Customer Relationships Global Political / Economic Risk Source: Conference Board CEO Challenge Survey, Best Companies for Leadership are more likely to reward innovation and collaboration than other companies. (Hay Group, 2014) 6 3

4 Innovation and human capital challenges Rank Human Capital Priorities Innovation Priorities Improve performance management processes and accountability Provide employee training and development Enhance effectiveness of senior management team Improve employee engagement Improve leadership development progress Create culture of innovation by promoting and rewarding risk taking and entrepreneurship Engage in strategic alliances with customers, suppliers, and other partners Find, engage, and incentivize key talent for innovation Apply new technologies (product, process, information, etc.) Adopt a user-centric approach to innovation Source: Conference Board CEO Challenge Survey, Key research questions How do companies view innovation and how is it measured? How important is innovation and who champions it? What types of rewards are used to encourage innovation and how effective are these rewards? 8 4

5 Question 1 How important is innovation to your company? 1. Not on management s radar 2. Mainly talk and no walk 3. Made a moderate investment 4. Made a big investment 9 Methodology 5

6 Data collection Surveyed Hay Group registered website users and WorldatWork Members Over 166 organizations participated Organizations primarily in North America Respondents are primarily HR and reward professionals Literature review and interviews 11 Respondents 12 6

7 Industry sector Representative mix of industries Industry Particpation Healthcare 15% Manufacturing 13% Wholesale/Retail Trade 9% Consulting 9% Finance/Banking 5% Insurance 5% Business Services 4% Education Services 3% Government 3% High Tech 3% Service - Non Profit 3% Oil/Gas/Natural Resources 2% Utilities 2% Communications 2% Construction/Real Estate 1% Publishing/Newspaper 1% Transportation 1% Other 6% 13 Company size By Revenues Greater than $5B 22% Less than $250M 32% By Employees $1B to $5B 24% $250M to $1B 22% Greater than 20,000 EE's 20% Less than 499 EE's 33% 2,500 to 19,999 EE's 500 to 2,499 EE's 23% 14 7

8 Research findings Innovation focus 66% of companies have a formal definition of innovation Function or group whose primary purpose is innovation R&D Department (11%) Center of Excellence, Taskforce, etc. (31%) No function devoted to innovation (58%) Primary focus for Innovation Develop new products or services (42%) Process improvement to enhance quality (37%) Process improvement to enhance efficiency & lower costs (31%) Re-tool or re-purpose current products of services (28%) 16 8

9 Champions of innovation Group Innovation Champions Effectiveness Senior Leadership 99% 76% HR Function 98% 56% Marketing Function 91% 64% Business Unit Leadership 89% 71% Ad hoc, project, or process teams 78% 65% Operations / Manufacturing 75% 55% Logistics Function 68% 46% Cross-functional Teams 67% 62% External Partners 61% 62% R&D Function 57% 78% Permanent Innovation Function 49% 77% 17 Importance of innovation Innovation is considered everyone s job 73% Core Value 66% Senior management takes advantage of every opportunity to champion innovation 54% Clear vision and strategy for innovation 48% We have strong processes, measures, and controls in place to manage innovation We invest more resources in research and development than do our major competitors 43% 27% 18 9

10 Process innovation metrics Metrics for Measuring Innovation Level of internal customer engagement, satisfaction, or retention Potential or actual revenue/profit of innovative initiatives Level of employee engagement, satisfaction, or retention Number of innovative initiatives implemented Quality/value of innovative initiatives in the pipeline Number of innovative initiatives in the pipeline Usage of Metric Metric Used to * Reward Effectiveness of the Metric 83% 81% 68% 75% 68% 76% 67% 44% 62% 67% 60% 63% 66% 58% 72% 54% 50% 71% Financial results of patented ideas 30% 24% 67% Development of patentable ideas 29% 28% 85% Number of approved patents 28% 24% 79% *Percentage is of those that use the metric as a measurement for innovation 19 Product / service innovation metrics Metrics for Measuring Innovation Level of external customer engagement, satisfaction, or retention Potential or actual revenue/profit of innovative initiatives Quality/value of innovative initiatives in the pipeline Number of innovative initiatives implemented Number of innovative initiatives in the pipeline Usage of Metric Metric Used to * Reward Effectiveness of the Metric 68% 76% 68% 46% 61% 88% 44% 53% 71% 39% 44% 76% 37% 48% 70% Development of patentable ideas 24% 33% 77% Number of approved patents 24% 26% 77% Financial results of patented ideas 24% 30% 77% *Percentage is of those that use the metric as a measurement for innovation 20 10

11 Question 2 Which reward program most effectively encourages innovation? 1. Incentives: innovation focused 2. Incentives: include innovation 3. Smaller periodic spot awards 4. Non-financial recognition 21 Effectiveness of reward programs in encouraging innovation Reward Program Used Usage Effectiveness Promotional consideration 67% 53% Bonuses or incentives 62% 73% Non-financial recognition 61% 66% Spot cash 60% 59% Base-pay or merit increases 37% 50% Rewarding for patentable ideas 31% 71% Rewarding for patentable ideas and patents obtained 28% 67% Equity awards 20% 65% 22 11

12 Particularly effective programs Annual incentives and bonuses Annual incentives and bonuses Our Share our Savings Program-employees make suggestions for cost saving improvements and if implemented they are awarded a cash bonus. (Traditional Suggestion Program) Spot awards Upton Bonus (after Upton Sinclair): cash or vacation bonus given to employees who demonstrate unconventional application of expertise to come up with new services, processes, or clients. Non-financial rewards If an employee develops an idea, the company provides marketing support & the product becomes theirs to own & take accountability for. Employees feel like product owners. 23 Question 3 How will your company invest in innovation? 1. More: in new programs 2. More: in existing programs 3. Same: keep current programs 4. Less: scaling back programs 24 12

13 Future focus on encouraging innovation Increasing the current level of innovation investment and development (56%) Maintaining the current level of innovation investment and development (41%) Decreasing the current level of innovation investment and development (3%) 25 Specific future focus areas Half of respondents said they are currently developing a reward strategy or program to encourage innovation The other half mentioned greater usage, adoption and/or retooling of: Incentive and bonus programs Spot bonus rewards Non-financial / recognition awards Talent management programs emphasizing innovation/collaboration 26 13

14 Conclusion and recommendations Rewarding innovation The performance model and desired work culture should drive the design of the reward program as it relates to innovation Performance measures should be balanced between: Hard (e.g., financial results) & soft (e.g., behaviors, perceptions) metrics Process, product, service innovation Short-term and long-term objectives Individual, team and corporate objectives 28 14

15 Rewarding innovation (con t) Innovation cultural attributes includes experimentation, interaction, collaboration, time to play, tolerance for failure Rewarding innovation is about signaling priorities and reinforcing performance via multiple rewards (i.e., financial and non-financial) It is easier to develop rewards that encourage process improvement than those that stimulate/reinforce breakthrough ideas or risk taking 29 Rewarding innovation (con t) Spot awards 1. Align your recognition program with 3. Use recognition insights for culture & core values talent management 2. Gain executive participation and 4. Invest in the program to get an ROI accountability 5. Open it up let everyone recognize everyone Source: The Business Impact of Recognition Systems (Hay Group, Globoforce, 2013) Management / professional plans Innovation is an increasingly used metric within existing plans R&D and innovation COE s often have unique incentive plans focused on more direct measures (e.g., patents) Scanlon / Gainsharing plans Productivity improvement plans focus on process innovation Formal employee engagement process Rigorous evaluation and implementation of suggested improvements Research demonstrates these plans are effective 30 15

16 Implementing & sustaining reward programs Effective reward programs are more about effective implementation than superior design Effective communication, ongoing engagement of employees, etc., Leveraging the value of total rewards via the role of line managers Ongoing monitoring and measurement of reward ROI to ensure the organization is optimizing its reward spend Quantitative / qualitative measures Refining reward and performance programs based on assessment Source: Reward Next Practices (Hay Group, D. Scott, 2013) 31 Thoughts, comments, or questions? 16

17 Presenters Tom McMullen Hay Group Chicago Dow Scott, Ph.D. Institute of Human Resources and Employment Relations Loyola University Chicago Erik Larson Hay Group Chicago Visit us at booth #324! And download our event app at startmp.com/waw code:hgwaw15 17