The Total Rewards Professional in a Changing Business Environment WorldatWork Group Partnership Netw

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The Total Rewards Professionalin a Changing
Business EnvironmentWorldatWorkGroup
Partnership NetworkLeadership Summit
Fred E. WhittleseyDirector, Global
CompensationAmazon.com 22 March 2002
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About the Speaker
Fred Whittlesey is the Director, Global
Compensation for Amazon.com, previously holding
the position of Director, Compensation for
Broadcom Corporation. Prior to this he was the
founding Principal of Compensation and
Performance Management, Inc. (CPM), a management
consulting firm based in Newport Beach, CA. His
16 years of management consulting experience also
included positions with Towers Perrin and William
M. Mercer. Prior to founding CPM, he was
director of the Western Region compensation
consulting practice at KPMG Peat Marwick.
Freds experience includes serving as an
instructor for WorldatWorkss certification
courses, UCLA Anderson Graduate School of
Management, and UCLA Extension on financial
aspects of managing people in organizations. His
recent articles include "Changing Employee
Behavior in a Changing Workplace" appearing in
Compensation and Benefits Management and
"Designing Shorter-Tem Cash Incentive
Compensation Plans" published in the book
Incentive Compensation in Employee Ownership
Companies by the National Center for Employee
Ownership. He also appears in WorldatWorks
self-study course video for Principles of
Accounting and Finance (T2). Fred received his
MBA from UCLA with concentrations in human
resource management and marketing. He graduated
Phi Beta Kappa and Magna Cum Laude from San Diego
State University with a BA in industrial/organizat
ional psychology. He also earned the Certified
Equity Professional (CEP) designation from the
Santa Clara University Leavey School of Business
Administration.
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Where Ive Come From
(Founded CPM)
During the 1990s boom, consulted to hundreds of
companies on compensation and performance
management issues
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Where Ive Come From
(Joined BRCM)
I thought I caught a dip
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Where Ive Come From
(Joined BRCM)
I thought I caught a dipboy, did I
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Where Ive Come From
(Joined AMZN)
Lets try this again
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Where Ive Come From
The poster child for underwater option
companiesand total rewards in a changing
business environment
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Todays Presentation

• The Total Rewards
• Professional
• In a Changing..
• Business Environment
• What do WE do?
• Bringing it Home to the GPN Organization

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A Message from our Leader

• layoffs, corporate scandals, bankruptcies,
  recession, terrorism, and the like. There is no
  doubt that our world is in flux and it affects
  all of us, both at home and at work. Anne
  C. Ruddy Executive Director WorldatWork
  3/1/02 Letter to Members

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Since We Last Attempted to Meet
recovery to Q2-2001 levels
markets closed
decline to Q4-1998 levels
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Just Some of the New Issues

• Pay for time away from work due to crises
• Unemployment benefits, severance, workers
  compensation for those affected
• Safety of the workplace
• Military leave compensation and benefits policy
• Status of performance against goals impacted by
  extraordinary events
• Exacerbation of simultaneous boom/bust labor
  economics
• Impact on already-weak stock market
• Pay levels for airport security personnel
• Requests for increased benefits for international
  assignments

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The Networks Meeting Content

• But we seem to be talking about the same old
  issues
• National survey of employer-sponsored health
  plans
• Drug screening and background investigations
• The impact of pay on being an employer of
  choice
• Fortunes 100 best places to work
• The future of health care
• Human capital practices related to shareholder
  return
• What your employees are afraid to tell their
  supervisors
• Delivering HR information via the internet
• A compensation philosophy why do you need one?
• Prescriptions for rising pharmacy costs
• The wrong way to evaluate the HR function

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The Networks Meeting Content

• and still having to monitor regulatory changes
• California wage and hour law
• OSHA update
• Benefit life after EGTRRA
• But some are addressing the turmoil
• Rumors of recessionjob growth in certain
  industry clusters
• Communicating tightened increases in recessionary
  times
• Changing trends in compensation
• Long-term incentive strategies for retention in a
  bear market
• Managing compensation in changing economic
  conditions
• Compensation strategies in a downturn economy

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Lets Back Up - Where Have We Come From?
The Total Rewards concept evolved during an
unprecedented economic boom
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Total Rewards WorldatWorks Model
Compensation
Benefits
Salary Short-Term Incentives Long-Term Incentives
Health and Welfare Retirement and Savings
The Work Experience
Acknowledgement, appreciation, recognition Balance
of work/life Culture Development Environment
job, place, company
Employers were forced to expand the definition
and value of their economic contract with
employees
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Another View Four Elements of Compensation
Cash
Goods and Services
Wage and salary Target-based incentives Activity-b
ased incentives Discretionary payments Liquidation
of other forms of payDeferred cash
(savings/retirement)
Health and welfare benefits Work tools Leisure
items Education and trainingSocial activities
Equity
Time and Place
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Total Rewards in the Unstable Environment
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Total Rewards in the Unstable Environment
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Total Rewards in the Unstable Environment
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Total Rewards in the Unstable Environment
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Total Rewards

• Issues
• Total rewards model evolved and was defined
  during the boom times
• Total reward value increased substantially during
  roaring 90s, raising the impact and the
  visibility of employee rewards
• Perceived cost and visibility of total rewards
  invites scrutiny during current period of
  economic instability
• Many progressive forms of rewards are perceived
  as easy to discontinue
• Challenges to the model, and elements of the
  model, are coming from new and unexpected sources

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Total Rewards

• Conclusions
• Total Rewards approach must be defined to change
  and respond quickly to the environment, going
  beyond a list of stuff
• Well-defined philosophy and strategy must be
  articulated to guide decisions
• Like any business issue, philosophy and strategy
  must have a financial basis
• Wont have the necessary data for years -
  discussions and actions are still piecemeal and
  reliant on anecdotal data
• Absent authoritative data, many are compelled to
  opine on the issues

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Professional
Compensation
Compensation Benefits
Total Rewards
IT/HRIS
Increased VariablePay Complexity
LegalTax/AccountingStock Admin
Equity-BasedCompensation
Benefits
Benefits
Total Rewards
TD, OD, HR, ER
Decentralization/Participation
Line Management
WWW
Employees
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Professional

• Issues
• Expanding scope of total rewards increased
  overlap between comp and non-rewards HR
  functions
• Total rewards expertise now lies in many non-HR
  areas
• Skill set is becoming too broad to master CCP,
  CBP, GRP, CEP
• Other specialty areas are developing compensation
  expertise
• Program design or modification may occur without
  HR input
• Egalitarian culture of technology has eroded
  control over context of information
• Rules of Engagement often differ from those in HR

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Professional

• Conclusions
• Need for rewards professional literacy in other
  HR specialty areas
• Must abdicate police role for advisor role
• Changes are even undermining HRs traditional
  core role of administration
• Must establish credibility through both content
  and process skills
• Goods news business leaders are now thinking
  about, and much more involved in, rewards issues
• Bad news total rewards leaders are not all
  thinking about business

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A Simple Formula
Source Edward P. Lazear, Personnel Economics
for Managers
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Changing
Technology
De- and Re- Regulation
Globalization
Organization Boundaries
Changing Reward Issues
Dot-com deathsand the return of dot-com IPOs
The stalling of broadband
Regional and sector economic downturnsand the
recession we didnt have
Widespread layoffsand the continuing war for
talent
And then add
Stock market correctionand rebound
Enron, Global Crossing, Andersen, etc.
Terrorism and warfare
What Next?
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Changing

• Issues
• Volatility of business environment is here to
  stay
• Pace of change continues to accelerate but is not
  uni-directional
• Pace of change exceeds traditional
  assess-design-implement cycle timeframe
• No longer able to address the issue as this
  years theme
• Total rewards field is not prepared for
  multivariate decision models
• Survey data methodologies, even newer online
  models, cannot capture the necessary data in the
  time required
• As total rewards scope has expanded, higher
  degree of change is designed into the topic

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Changing

• Conclusions
• Must not be merely pro-active, but projective
  and thought-lead
• Must think beyond HR issues to understand HR
  issues
• Professional services industry restructuring
  renews pressure for traditional interventions
• Formal survey methodology will be temporarily
  rendered less valid than anecdotal data from
  networking
• Finding order in chaos, rather than imposing
  order on chaos, is a new role for most
• Total Rewards issues are rapidly being co-opted
  by broader business issues

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Business Environment
UncertainPerformanceMetrics
MarketValuationUncertainty
FinancialReportingin Flux
Soft butUnevenEconomy
Financial impact corporate and individual - of
rewards programs being revisited
Earnings Charges
Employee Taxation
Investor Perception
Corporate tax breaks
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Business Environment

• Issues
• Business environment is currently dominated by
  financial measurement and reporting issues
• Business was already being measured differently
  e.g., balanced scorecard which was reflected in
  reward system design
• Employment relationship is being measured
  differently
• Beyond business -- political, media, popular
  pressures will force accountability for reward
  practices
• Even if we had a fully quantitative model of
  total rewards value, it would soon be obsolete

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Business Environment

• Conclusions
• Increased level of financial skills are required
  for total reward professionals
• Must understand basics of the business, beyond
  job matches
• Business can learn compensation faster than
  rewards professionals can learn business
• Coming challenges to the total reward model are
  going to be
• Financially complex
• Politically tinged
• Comingled with broader business issues

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So What do WE do?

• Present irrefutable data -- not just rewards
  data surveys (and not just the latest consulting
  firm sales pitch)
• HR performance metrics
• Human capital impact
• True competitive data
• Financial impact analysis
• Be a business professional (and not just the HR
  person)
• Business understanding
• Operations orientation
• Tactical emphasis, balanced with strategic
  orientation

Will this help us make money?
or equivalent question for nonprofit/governmental
entities
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So What do WE do?

• Lead change and tell them whats new (and not
  just what the media has already told them)
• Interpret business trends through HR issues to
  business needs
• Be willing to point out inevitable but unpopular
  issues
• Operate in a business environment (and not just
  the world of total rewards)
• Balance employee concerns with financial and
  operational requirements
• Speak in business terms, not flavor-of-the-month
  HR buzzwords
• Continue to emphasize financial and quantitative
  elements

Will this help us beat the competition?
or equivalent question for nonprofit/governmental
entities
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Bringing it Home to the GPN Organization

• Offer content based on quick-turn member input
• Challenging for a large parent organization with
  broad scope
• Tailor content and relationships to
  industry/region/demographic profiles rather than
  offering a stop on the national roadshow
• Constrained by resource limitations in a parent
  organization
• Radically experiment with membership and
  attendance profiles
• Risky and time-consuming for a parent organization

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Bringing it Home to the GPN Organization

• Define, schedule, and execute program delivery on
  internet time
• Centralized parent organization cant accomplish
• Move toward business-based content
• Requires time and a change in contributors,
  difficult for a parent organization
• Define the next generation of thinking and the
  professionals that lead it
• Perfect joint role for the GPN members and the
  parent organization

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And Now
What has changed since we started this
presentation?