Compensation Strategy in Hay Group

Introduction

In difficult economic times, it is important to choose the right strategy policy and performance management to extract maximum benefit from compensation programs. The formal attitude to the implementation of the strategy is unacceptable. In the new economic climate, only those companies that clearly define the target level of efficiency and provide appropriate compensation to employees will survive. This paper will examine best practices, challenges, and external factors influencing Total rewards strategy using the example of the company Hay Group’s compensation practices.

The Company under Consideration

Hay Group is a global company that consults on management issues and works with leaders to transform their strategies into reality. Hay Group consider themselves as the company that develops talents, organizes people to work in the more effective way, and motivates them to achieve the highest goals. The company focuses on making changes and helping people and organizations with the implementation of their potential.

Hay Group was founded in 1943 by Edward S. Hay, who was the initiator of many of current fundamental techniques of management the staff and organizations. The company has over 3,000 employees working in 86 offices in 47 countries (Hay Group, 1996, p. 13). The customers come to Hay Group from the private, public, and non-profit sectors as well as from major industries, and, therefore, the company is able to respond to a variety of business challenges (Hay Group, 1996, p. 13).

Hay Group puts emphasis on the proper use of its employees, their skills, and work. The company gives its employees a deep understanding of their role in achieving the strategic goals of the organization. Hay Group uses this understanding to transform business strategies into organizational solutions. This is considered the basis of the compensation strategy of Hay Group.

Compensation Strategy of Hay Group

The company’s compensation strategy is designed and implemented in order to achieve the following goals. First, it is the stimulation of the production behavior of employees, aimed at achieving the objectives. Second, the company aims to attract and retain highly skilled professionals. Furthermore, it wants to create conditions for the full realization of the potential of employees, and maintain a positive image of the company within the labor market. In addition, the company is aimed at the creation of uniform corporate standards of wages and benefits for different categories of employees. Finally, Hay Group is focused on cost control of the staff and simplification of the budgeting process (Hay Group, 1996, pp. 13-16).

The compensation strategy does not establish absolute values of compensation of employees by job title or position. The absolute value of workers’ wages is established based on the system of the company’s officers’ levels (grades) that are adopted by the company within the budget, agreed, and approved by the Board of Directors and the general budget of the company. Compensation policy is approved by CEO. Manager of Human Resources carries responsibility for compliance with policies within the company. In each service / department, the Policy Director of functional areas carries the responsibility for compliance with Compensation Strategy.

Certain basic principles are laid in the formation of wage and benefits systems in Hay Group. First is the principle of external conformity, which means that the salaries should correspond to the average wage for the respective specialties of the regional labor market. Second, the principle of internal justice is respected, which determines the wages of each employee depending on the official level (grade), qualifications, and performance over a specific period of time. For the implementation of the principle of external compliance, the company annually indexes monthly wages in line with inflation and the change in the minimum subsistence level adopted for each region. Salaries are determined independently and fixed within the approved budget of personnel costs. Employees are paid all of the guaranteed bonuses, allowances, compensation, and benefits. In addition, the organization takes care of the health of its employees and strives to provide the entire additional medical care, partially offsets the cost of rest and treatment, ensures compliance with health and safety as well as organizes sports classes for employees. In addition, the organization provides employees with all the necessary equipment and tools, such as cars for official use and mobile phones. Moreover, within these principles, Hay Group is committed to providing its employees with decent social conditions at work, including the provision of hot meals, corporate transport delivering to workplace and back (Lipman & Hall, 2008, pp. 89-90).

Best Practices

Compensation strategy is used by the company in order to attract, motivate, and retain staff. In Hay Group, the struggle for the employees starts with the Total rewards strategy. The main components of the Total rewards strategy are compensation and benefits. Compensation involves material rewards (salary level) that the employee receives for his/her work. Compensation consists of fixed (salary) and a variable (bonus system) parts. The benefits are presented in the form of a social package (medical insurance, mobile communications, the corporate cars, interest-free loans, etc.), which provides the employer to the employee in addition to material rewards (Hay Group, 1996, p. 12).

Work-Life, or the balance between work and private life, is an integral part of the Total rewards strategy. Within this part, the main emphasis is put on the prevention of overtime working and the ability to work flexibly. Performance and recognition are the next component of the strategy. The purpose of this component is to ensure the relationship between the company’s goals and individual tasks of employees. The last point strategy is the development and career opportunities of the staff. This component is also an important part of the Total rewards strategy. Thanks to this point, the company is engaged in the constant development of its personnel, and it shows the prospects for further career growth (Glowa, Spinks, White, & Kuper, 2015, p. 19).

Compensation-Related Challenges

In both short- and long-term perspectives, focus only on financial performance indicates that the company does not pay much attention to the relationship between the stability of performance and non-financial performance indicators. If a company will further be interested only in the size of the monetary revenue, eventually there may be bias towards income, sales, and cost savings. Under such conditions, the level of employee engagement decreases because they can be motivated not only by financial results. They want to be a part of the company and understand its goals.

Impact of the Compensation Strategy on the Company and Its Stakeholders

The main objective of the strategy used by Hay Group is to attract, motivate, and retain the necessary professional staff to achieve the objectives of the company. The above-mentioned factors are crucial in the fight of the leading companies for the best employees. Success of the company is directly dependent on the success of its employees. Now, there are few of those who need only wages. Many people are interested in total rewards that they may receive from the employer.

Thus, the performance of the company strongly depends on its employees’ satisfaction. The Total reward strategy will contribute to the achievement of self-actualization of employees and achievement of the company goals. In recent years, employers have recognized the fact that the company’s main asset is the staff, or the personnel involved in the work.

The main advantage of the Total rewards strategy is the fact that who will work in the company and for how long as well as how to motivate the staff to perform key performance indicators of the company depend on the implementation of this strategy. In this approach, the company will receive the highest possible performance in business. With this strategy, negative aspects in terms of personnel turnover will be minimized, making it easier to perform tasks.

Implementation of this methodology of compensation and benefits system addresses a number of key points that contribute to the development of the company as a whole, also responding to the numerous questions of employees within the company.

Laws, Labor Unions, and Market Factors Impact the Company’s Compensation Practices and Traditional Basis to Pay

Civil society organizations, government law, and external market factors have a direct impact on business operations. Trade unions, which fight for the rights of workers, thereby establishing a balance of relations between the owners and hired workers influence Hay Group’s compensation practices in the way that gives an opportunity to implement certain aspects of the Total rewards strategy (e.g. Work-Life).

The state has an impact on the organization mainly through legislative regulation of activity. The amount and complexity of legislation specifically dealing with the business have risen sharply. Changes in various forms of reporting of enterprises and organizations as well as changes in the tax and customs regulations occur. State legislation is characterized by complexity and mobility, and quite often, even uncertainty. The uncertainty of the effect of current state on business is caused by the fact that the requirements of some organizations are in conflict with others, and at the same time, many organizations have a certain relationship with government agencies that enforce the implementation of such requirements (Lipman & Hall, 2008, p. 100).

In addition, the factors in the economic environment must be constantly assessed since the state of the economy influences the goals and objectives and the way of achieving them. It may be a threat or a new opportunity for the company. Thus, fluctuations in the dollar against foreign currencies can cause gaining or losing large sums of money.

All these factors lead to the necessity for Hay Group to build its compensation practice based on their constant evolution. Thus, the system of compensation and benefits is based on three key factors that correspond to all the changes on the external market. These factors are job evaluation, pay strategy, and benchmark. Therefore, it is necessary to participate in the review of wages, management of reward, and the use of data from surveys (Glowa et al., 2015, p. 29).

Pay level responds to the changes in the policies of the whole market and takes into account the level of the reward of the direct competitors of the focus group. To respond to the actions of labor unions and be a competitive employer, Hay Group must provide its employees with the set of benefits that is the standard for this market (Glowa et al., 2015, p. 29).

Benchmark guarantees competitiveness (Glowa et al., 2015, p. 32). As the leading consulting company, Hay Group annually prepares salary review to be competitive against its direct competitors. By participating in the surveys, the company determines how competitors and the overall market pay.

The traditional pay model may ensure coherence and feeling of justice; however, at the same time, it can have unforeseen and unexpected results. Competence-based fee structure will have a need in the training of staff and it may result in higher costs. The system of merit pay is often not able to create a relationship between pay and productivity. Thus, considering all these factors and the well-developed strategy of compensation practice designed and implemented by Hay Group, the effectiveness of traditional bases for pay seems to be less than the Total rewards strategy that is now successfully used by the company.

Conclusion

In the transition to market relations, the definition of ‘wages’ becomes crucial. It can be considered as the evaluation of labor, as a form of distribution of the fund of individual consumption by the number of employees and the quality of work, as the relationship between the company and the employer and the employee. For these reasons, in theory and in practice, different concepts are used. This fact defines a feature of wage policy in the individual enterprises. The company Hay Group uses the Total rewards strategy in its compensation practices. This strategy brings benefit to each employee and the company’s successes in general.

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