Professional Documents
Culture Documents
W W W . W A T S O N W Y A T T . C O M
Key findings
TABLE OF CONTENTS
Executive Summary . . . . . . . . . . 1
About This Survey . . . . . . . . . . . 2
Total Rewards . . . . . . . . . . . . . . 3
Base Pay and Merit Budgets . . . 4
Short-Term Incentives . . . . . . . . 6
Long-Term Incentives . . . . . . . . 7
The 10-Year View . . . . . . . . . . . 8
Performance Management . . . . 9
Global Compensation . . . . . . . 10
Attraction and Retention . . . . . 11
Conclusion . . . . . . . . . . . . . . . 12
FEATURED FIGURES
FIGURE 2: Merit Increase
Budgets Rise Slightly . . . . . . . . . 4
FIGURE 6: Average STI
Funding Has Rebounded . . . . . . 6
FIGURE 9: Employers Continue
to Make Changes to Their
LTI Plans . . . . . . . . . . . . . . . . . 7
FIGURE 11: Significant Gap
Exists Between Design and
Execution of Performance
Management Systems . . . . . . . 9
FIGURE 13: Firms With a Global
Total Rewards Strategy More
Likely to Monitor Programs . . . 10
2005/2006 Strategic Rewards and Pay Practices: The Need for Execution
EXECUTIVE SUMMARY
Finance/Insurance/
Real Estate
19%
Utilities/
Transportation/
Communication
13%
Manufacturing
28%
Wholesale/
Retail Trade
8%
This report refers to high- and low-performing organizations. The distinction is based on
self-reported but validated responses to the question How well did your company
perform financially, compared with other firms in your industry over the past year?
In our analyses, we characterized companies that identified themselves as substantially
above peer group as high-performing organizations and those that said their performance
was below that of their industry peers as low-performing.
When linked to shareholder returns in publicly held companies, independent analyses
of these responses show the measure to be valid. Specifically, firms identified as
high-performing realized a three-year total return to shareholders of 117 percent,
compared with 26 percent for those firms identified as low-performing.
For certain elements of this analysis, employees were divided into groups based on their
job performance. The performance measure was a composite of the employees self-rating
and the rating received from his or her manager during the most recent review period.
Those who reported the highest possible rating on both were considered top performers.
Those whose combined employee/manager ratings were average or below were considered
poor performers.
Employers are also not effectively communicating their total rewards strategy. Half of
employers (48 percent) think their employees
understand the value of their total rewards
package only slightly or not at all and
less than one-third of the employees surveyed
say their company has communicated a total
rewards strategy to them.
Not surprisingly, top-performing employees
have a better understanding of the value of
their rewards package. Nearly two-thirds
(63 percent) of top-performing employees
indicate at least moderate understanding,
versus 36 percent of poor performers.
F I G U R E 1 : High-Performing Firms Better Align
Reward Programs With Business Outcomes
61%
Linked to business
strategy
Encourages
desired culture
and behaviors
37%
43%
44%
24%
34%
2005/2006 Strategic Rewards and Pay Practices: The Need for Execution
TOTAL REWARDS
All firms
Cost: The current and projected cost and risk profile of rewards
2005/2006 Strategic Rewards and Pay Practices: The Need for Execution
Cost
In addition to achieving alignment and delivering employee value, successful reward plans
strike a balance between effectiveness and
cost. However, only 35 percent of employers
formally measure the cost effectiveness of
their total rewards program to a moderate or
great extent. Additionally, nearly six in ten
(59 percent) make at most slight modifications
to their programs to improve cost effectiveness.
Year
2006 (projected)
3.5%
2005
3.4%
2004
3.0%
5.6%
Average performers
3.5%
Poor performers
2.5%
All employees
3.7%
High STI/LTI
High Salary
Salary as Percentage
of Total Rewards
63%
79%
STI/LTI as Percentage
of Total Rewards
13%
8%
3-Year TRS
44%
25%
7%
8%
11%
11%
110119.9%
30%
30%
100109.9%
29%
29%
9099.9%
17%
8089.9%
Less than 80%
21%
11%
8%
2005/2006 Strategic Rewards and Pay Practices: The Need for Execution
High-performing firms
Low-performing firms
5
Watson Wyatt Worldwide
SHORT-TERM INCENTIVES
120%
Targets
100%
80%
60%
2003
2004
2005
High-performing firms
2005/2006 Strategic Rewards and Pay Practices: The Need for Execution
Low-performing firms
All firms
Revenue Growth
53%
58%
54%
Operating Income
Growth
62%
60%
21%
Cash Flow
35%
26%
34%
Customer
Satisfaction
21%
Quality Outcomes
25%
21%
24%
High-performing firms
Low-performing firms
All firms
29%
Payouts
Low Differentiation
Companies
STI Payout to
Higher-Performing Employees vs.
Lower-Performing Employees
4.7
2.1
3-Year TRS
47%
2%
14%
14%
27%
50%
46%
52%
63%
35%
20%
10%
14%
17%
8%
13%
6%
9%
Eliminated ESPP
Increased ESPP discount
2005/2006 Strategic Rewards and Pay Practices: The Need for Execution
LONG-TERM INCENTIVES
0%
3%
7
Watson Wyatt Worldwide
43%
35%
34%
20%
30%
27%
53%
39%
64%
49%
Opportunities
Compensation strategy is
clearly articulated*
30%
30%
Employees understand
reward plans*
23%
25%
21%
20%
2%
6%
49%
52%
PERFORMANCE MANAGEMENT
Companies with strong performance management systems post significantly better financial
results, according to WorkUSA, Watson Wyatts
ongoing study of U.S. employee attitudes.
Unfortunately, while most employers report
that their organizations have incorporated
best practices in designing their performance
management programs, they have been less
successful in executing the performance
management processes. Ninety-one percent
say they provide formal goal-setting linked
to business objectives, and 74 percent say
managers are at least moderately effective at
linking the goals. But only 58 percent of
top-performing employees indicate that their
managers provide a formal linkage to business
goals. Moreover, only 31 percent of poorperforming employees say this is the case
(Figure 11).
Employee View
91%
74%
91%
38%
67%
45%
52%
34%
98%
91%
64%
57%
75%
57%
92%
64%
79%
40%
82%
36%
37%
23%
96%
51%
53%
30%
9
Watson Wyatt Worldwide
58%
31%
2005/2006 Strategic Rewards and Pay Practices: The Need for Execution
One step toward improving managerial effectiveness may be to provide managers with
the appropriate training. Only 36 percent of
organizations have a formal training program
for managers to enhance their ability to
effectively manage rewards. However, those
that provide them are better able to manage
employee performance (Figure 12).
F I G U R E 1 2 : F i r m s W i t h F o r m a l M a n a g e r Tr a i n i n g
P ro g r a m s M o re E ff e c t i v e l y M a n a g e E m p l o y e e P e r f o r m a n c e
Provide coaching and feedback to
employees throughout the year
57%
48%
58%
46%
10
33%
10%
35%
3%
52%
Total cost
Appropriate relationship to market
Percentage reporting to a great extent.
Have global total rewards strategy
No global total rewards strategy
64%
53%
GLOBAL COMPENSATION
21%
43%
13%
50%
84%
62%
60%
42%
46%
81%
74%
79%
All firms
F I G U R E 1 5 : Vo l u n t a r y Tu r n o v e r
Rate Remains Stable
Year
2005
10.6%
2004
11%
2003
9.6%
2005/2006 Strategic Rewards and Pay Practices: The Need for Execution
11
Watson Wyatt Worldwide
CONCLUSION
12
A B O U T W AT S O N W Y AT T
A B O U T W O R L D AT W O R K
Locations
ASIA-PACIFIC
Auckland Bangkok Beijing Delhi
Hong Kong Jakarta Kolkata
Kuala Lumpur Manila Melbourne
Mumbai Seoul Shanghai Shenzhen
Singapore Sydney Taipei Tokyo
Wellington
Divisions and Subsidiaries
CANADA
Calgary Kitchener-Waterloo Montral
Toronto Vancouver
EUROPE
Amsterdam Birmingham Bristol
Brussels Budapest Dublin Dsseldorf
Edinburgh Eindhoven Leeds Lisbon
London Madrid Manchester Milan
Visit www.watsonwyatt.com
or call 800/388-9868.
Welwyn Zrich
LATIN AMERICA
Bogot Buenos Aires Montevideo
Mexico City San Juan Santiago So Paulo
UNITED STATES
Catalog # W-865
W W W . W A T S O N W Y A T T . C O M