Maintaining a competitive total rewards package might not seem important in the current state of affairs, but it is central in having an engaged workforce. Engaged employees tend to align their values with the organization and show commitment and passion for their job and the company.

A total rewards package. Does your company have one? Does your company need one? Despite what many contractors might think, total rewards is more than compensation, it is about satisfying, exciting and keeping key employees. WorldatWork, a global human resources association focused on compensation, benefits and work/life balance, defines total rewards as “all of the tools available to the employer that may be used to attract, motivate and retain employees.”¹

Maintaining a competitive total rewards package might not seem important in the current state of affairs, but it is central in having an engaged workforce. With unemployment rates in the construction industry reaching 22.7% in December 2009,² many contractors are taking advantage of the current labor market and upgrading their staffs, which makes total rewards even more important. Retaining and motivating these employees will be vital in weathering today’s market and thriving during the recovery.  

According to a survey conducted by Monster.com and Human Capital Institute (HCI) in October 2009, there is a major disconnect between how employers and employees perceive the recession’s impact on the workplace. In this study, 84% of employer respondents believe their workforce is content to have a job, while only 58% of employee respondents agree. Having a competitive total rewards package, and communicating the value of that package, can help contractors create a more positive environment for employees in this tough economy. 

Why should contractors care about their employee engagement level? According to WorldatWork, engaged employees are likely to work harder, with greater accuracy, go the extra mile and take accountability for their work. Engaged employees also tend to align their values with the organization, and show commitment and passion for their job and the company. A contractor with disengaged employees can end up with poor work quality and, ultimately, unhappy owners, subcontractors and vendors. 

When determining the appropriate total rewards strategy, contractors should consider all stakeholders, identify the various components of a total rewards package and develop a total rewards philosophy that will support the organization. 

The first consideration to make in creating a total rewards plan is to identify the various stakeholders who this strategy affects:

• Board of directors and the executive team. Involvement from these groups is important, not only because their approval is typically required for such a strategy, but also to promote buy-in and ownership of the plan.
• Human resources.HR is an important team player since it is in charge of implementing, communicating and administering these offerings.
• Employees. Companies must consider their employees’ needs and values.

An external consultant can provide an outsider’s perspective to total rewards plans, including best practices and competitive analysis. Next, identify the various components that comprise total rewards. These include compensation, benefits, work/life balance, performance and recognition, and development and career opportunities. 

Compensation

Compensation is typically the largest overhead expense. Although base pay represents a fixed cost, contractors can take steps to increase their return on merit and incentive pay. At the height of the market, many contractors tied annual base-pay increases to cost-of-living adjustments and relied on leadership’s discretion when determining bonus payouts. Payout amounts under these plans are a mystery to employees. For example, employees in XYZ Construction, Inc. receive a merit increase on their anniversary date. This increase is typically not communicated prior to going into effect. Employees learn of this increase when they open their checks. Similarly, bonus participants learn of their bonus payouts when an extra paycheck mysteriously appears on their desks. In both cases, employees receive no advance notification of the payments, nor do they receive explanations of how either are calculated.  

As in the case of XYZ Construction above, variable (incentive) plans that do not directly link employee pay to employee performance drive the company towards a culture of entitlement. These plans are seen by employees as an extension of their base pay and they come to expect the same amount (or better) every year, regardless of company or their own performance.   

With the emphasis on reducing fixed costs, contractors are reevaluating their compensation plans in an effort to get more return on their compensation dollars. Plans that truly tie performance to pay have payouts that vary with company financial and individual performance. These plans are very powerful motivators as long as employees understand the pay-for-performance link. If employees believe they can increase their payouts because of changing their behavior and performance, they will no longer expect the same bonus amount year-after-year.   

Continuing with the XYC construction, Inc. example, management took steps to drive performance with their annual base increase and bonus plans. To this end, base increases were shifted from being COLA adjustments to increases based on individual performance.  These merit increases are tied now to the results of the annual performance review.  Managers consult a merit matrix to determine increase amounts for each performance rating (See Exhibit 1). 

Exhibit 1:Merit Matrix

Employees now know how merit increases are determined and understand that their performance is the basis for annual pay increases. Regarding annual bonuses, the company has communicated financial measures that drive the funding of the plan, and employees understand that their payouts are based on both the company’s performance against these financial measures, as well as their individual performance. These changes have increased employee accountability and ownership over their performance.   

Regardless of a firm’s pay-for-performance focus, pay should at least be competitive to the market to ensure that a firm can attract and retain key employees. A firm may choose to pay slightly below the market in base and above the market in incentive pay, or visa versa. When evaluating competitiveness, contractors need to consider the compensation types prevalent in the firm’s marketplace. If a firm’s competitors are providing long-term incentives and your firm is not, you may lose employees or prospective employees to your competitors, even if your base and bonus pay is competitive.  

The primary components of compensation include base pay, short- and long-term incentives, deferred compensation and equity compensation.

Base pay represents a fixed cost to the organization and is not necessarily a motivator simply because pay is above the market. However, if base pay is below competitive rates, it definitely can be a de-motivator, or at least a risk factor in losing employees. Base pay structures are an effective way of ensuring internal equity (similar pay for similar work) as well as external competitiveness for all positions across the organization. Although wages paid to employees are a fixed cost, this does not mean that contractors must pay all employees the same proportionate amount. In an entitlement culture, the employer would grant all employees the same percent increase based on the cost-of living change. Employees need do nothing to receive this amount, and the cycle of entitlement continues. Contrast this with a company that bases salary increases only on merit. A typical process for this is to create a merit matrix, where increase amounts are directly based on employees’ performance ratings. Some employees receive no increases, a few receive substantial amounts, and the rest are somewhere in between. Linking any annual base pay increases to an employee’s performance reinforces the pay-for-performance culture and allows a firm to spend its annual base increase budget in ways that best reward performance. These plans require clear and frequent communication with employees as to how performance impacts pay.   

Variable incentive plans are used typically for professional and management roles, but application of these plans is expanding to more positions across the organization. Variable pay plans are attractive to contractors because in well-designed plans, payouts vary based on company and individual performance. In firms with an entitlement culture, ill-designed incentive plans become fixed expenses because payout amounts become expected. Plans where funding is determined based on company financial performance are truly variable, and pay out only when specific financial measures are met. As with any shift from an entitlement to performance-based plan, the contractor must effectively communicate these plans to employees to realize the full benefits of the shift to a performance culture. Communications would include what conditions must be met for funding of base increases and bonus pools to occur, and what actions/behaviors/performance is required of the employee for bonuses to be paid. Often, this is a core part of the employee education effort.  It does no good to communicate that “improved productivity will increase funding for pay increases and bonuses” if the individual employee does not understand productivity and his or her personal impact on that productivity change.

Benefits

Benefits satisfy the employee’s need for security related to health and welfare, and retirement and time off. A company’s benefits package can be one of the most attractive things to an employee, and next to compensation, one of the most expensive for the organization. While many contractors may not be able to attract top talent with compensation, or are making cuts to benefits packages, contractors who continue to provide excellent benefits for their employees are more likely to attract the best available talent, retain, motivate and eventually be able to attract talent for growth when the economy rebounds (see sidebar, below). Benefits packages can fall into two categories: income protection programs and pay-for-time- not-worked programs.  

Income protection programs are plans designed to protect an employee’s standard of living. There are mandatory elements required by law such as unemployment, social security, etc.; and non-mandatory elements, such as medical, vision, retirement, etc.  

With the rapidly rising cost of health insurance coupled with the need to reduce expenses, contractors have taken particular aim at benefits plans, especially family coverage.In an effort to balance these conflicting pressures, employers are offering more benefit options, allowing employees to tailor their coverage and associated costs to their specific needs. While the cost of providing health care to employees is continuously increasing, organizations are able to manage costs with variations in plan designs and should regularly evaluate their health care plans. Welfare benefits tend to vary from one organization to the next, but typically involve some variation in form and amount of death, disability and long-term care available to employees. 

With the large number of baby boomers nearing retirement and the question of the availability of Social Security funds looming over the heads of the current generation, retirement and investment plans are becoming more and more prominent. These plans are another way for organizations to show appreciation for employee’s through employee/employer matched programs, such as a 401(k), or providing retirement benefits to qualified employees. The value of employer contributions is often not well understood by prospects or employees and providing education on this benefit, if present, is well worth the costs of that education. 

Pay-for–time-not-worked programs protect the employee’s income during times when the employee is not working. When at work, this would ensure that the employee receives pay for times when they are not required to be on the job, whether it is in the form of regular breaks, training and education, travel, meetings, etc. Pay for time not worked is one benefit that can be very attractive to a current or potential employee. In the everyday balance of work and life, employees become ill, have family or medical emergencies, desire to take a vacation, etc. and want to know that their employer understands and respects their need for this time away from work. Keep in mind that pay for certain situations such as breaks, meals, travel and training is mandated by federal and state laws and is not optional. Some companies have gone so far as to guarantee employment for a minimum number of hours for some positions, with the quid-pro-quo being an agreement by the employee to be posted wherever needed by the company. 

The amount and types of benefits a company offers can vary from one region of the country to the next, and is often influenced by such things as corporate philosophy, competitiveness, taxation, employee demands, etc. Organizations must regularly evaluate their benefits packages to make sure they are competitive with the industry and region, meet the needs of the employees, are cost effective and comply with any government requirements. Organizations should offer benefits that the current workforce views as valuable, and make the value known to employees so that they understand the investment the company is making.

Work/Life

Work/life benefits satisfy an employee’s inherent need for control over their own life balance. While work/life benefits may be of less importance than compensation and benefits, some generations tend to value work/life benefits more than others and often are willing to take certain benefits over more pay. When an organization takes interest in helping employees have a healthy work/life balance it ultimately creates an environment for organization-wide success.  

Organizations can offer a variety of work/life benefits that help their employees in a number of ways. These may include:

• Dependant care – Organizations who provide dependant-care benefits to employees recognize that many households rely upon dual-incomes, leaving no one at home to care for children or the elderly.
• Health and wellness – Part of keeping employees happy and engaged means taking an active part in supporting their health and wellness. By doing so, organizations ensure that their employees are absent less due to illness, they have less stress and are able to balance all aspects of their lives.
• Flexibility in the work place – Organizations define flexibility in the workplace in a number of ways, but generally it refers to when, where and how employees accomplish their work. This can mean providing flexible schedules, telecommuting, providing leaves of absence, etc.
• Programs for financial support – Organizations can show appreciation for employees through recognizing their need for financial support in a number of ways. Tuition reimbursement and adoption assistance are just two examples.
• Furloughs – A formal policy of providing time away from the job with paid travel costs to visit families has been effective for some companies in posting employees to distant projects.  Such furloughs help provide work/life balance to families where both spouses are employed.

Organizations can provide a wide variety of work/life benefits to its employees. Before deciding what types of benefits would be most appealing, an organization should consider surveying its employees for desirable benefits and research what other organizations in the industry are providing. 

Performance management and recognition

While performance management is one of the most controversial aspects of human resources due to the measurement and evaluation of employee performance, it plays an important function in the success of an organization if done correctly. Performance management is much more than filling out a form once a year. It is about improving communication between management and employees. Well-designed and executed plans ensure that employees understand the job requirements and performance expectations, as well as formalizing discussions surrounding performance expectations and goals. Employees are encouraged to address barriers to performance and express needs and career interests. Managers keep discussions constructive and forward-looking. The process is well documented and involves coaching, providing feedback and conducting annual and periodic reviews throughout the year. From this process, employees gain an understanding of what the employer’s expectations are, where they need to improve or have succeeded and what type of career path they can expect.  

Performance management is an important element of total rewards as it evaluates the employee’s ability to get the job done and do it accurately. Without a regular review of performance, employees lack the understanding of where they need to improve or where they have succeeded. This can leave them feeling as though they lack direction and result in an organization that fails to generate a profit.  

To ensure that all employees receive the same quality of evaluation, managers must learn how to provide proper feedback, measure employee performance and set goals for each employee. The review process should be custom-made for each job and employee, as no job requires the same expectations as another, and employees have different goals and career paths. Employees appreciate contractors who help determine their career paths and direction. Employees are further rewarded when they feel the company is investing in their success.  

A performance management plan is more successful when paired with a recognition plan that rewards individual performance. Performance management provides the means for evaluating performance, while recognition is the acknowledgment of this performance. Recognition is one of the most influential elements of retaining, motivating and creating a positive environment for employees. A recognition plan should involve acknowledging employee performance, actions or behaviors as soon after they occur so that they are most successful in reinforcing the desired behavior. Employees must view rewards as meaningful, criteria should be well defined and communicated and rewards should be linked to employee, team and company performance. Recognition can be in the form of a formal system that award employees with bonuses, paid time off, stock ownership, etc., and informal systems which award employees with gift certificates, thank you cards, team dinners. The possibilities are almost endless for the creative employer. 

Development and career opportunities

Development and career opportunities satisfy the employee’s need to feel challenged and build new skills. Like performance management and recognition, development is an ongoing process and may be linked to the performance management process. Through development, employees learn and grow, which in turn allows the organization to grow and become prosperous. Development allows an employee to improve his or her skills for a current position, or to prepare him or her for future career opportunities. 

Typical learning opportunities that contractors provide include in-house training, which should create a coherent flow of knowledge through the organization, and external training such as outside conferences, conventions, tech school, undergraduate and graduate degree programs, seminars or webinars and other distance learning vehicles. Coaching or mentoring programs, as well as planned rotation of job assignments also provide ways for employees and managers to develop new skills. These programs create opportunities for newer talent to learn from those with more experience, and in turn give managers more experience with training or mentoring others. These plans also provide vehicles for knowledge transfer from one generation to the next. Organizations can also provide advancement opportunities to employees through internal job postings, succession planning, job promotions, etc. If a contractor is willing to promote from within and provide clear career paths to employees with fewer “dead-ends,” employees are more likely to be loyal and stay motivated. Additionally, firms may provide tuition assistance for classes related to the employee’s current or future position.  

The most crucial step in evaluating a company’s total rewards is to consider and identify its total rewards philosophy. This includes asking the following questions:

• What is the organization’s culture? Is pay an entitlement, or is pay used for driving performance?
• Should the company’s total rewards offerings be greater than, equal to or less than that offered in the market?
• What will the company offer in the way of totals rewards? Remember, the main components are compensation, benefits, work/life balance, performance and recognition, and development and career opportunities.

Choosing how much of each element to include in the package is dependent on the level of value to the employees. Employees should be aware of the value of the different rewards. For instance, the cost and value of compensation is obvious to employees; however, they may not be aware of the amount the company pays for their health insurance benefits or the cost of developing employees through training. When it comes to other noncash elements, such as career opportunities and certain work/life benefits, employees should understand the impact these can have on their lives and sense of well being. When employees know the true value of their total rewards they often feel more appreciated and more engaged. In the current economic climate, many noncash total rewards elements can be implemented at little or no cost. Any steps a contractor can take to mitigate the demotivating effects of layoffs, wage freezes, etc., goes a long way toward driving engagement, motivation, and retention. 

How contractors choose to use total rewards to support their strategic plan, retain, motivate and attract employees depends on the mix of total rewards they choose to implement. This mix is dependant upon each firm’s culture, vision, mission and strategy. Employers also must take into consideration the current labor market, competition, program costs, etc.  

Retaining key employees should be a high priority for all contractors. Take the time to develop a total rewards strategy and implement that strategy. Once the market recovers, great employees will be crucial to the firm’s long-term success.  

Sidebar

Fortune Magazine recently published its annual “100 Best Companies to Work For” list for 2010, and six construction-related firms made the cut. To pick the top 100, Fortune and the Great Place to Work Institute surveyed 343 companies, which had to be at least seven years old and have more than 1,000 U.S. employees. Companies score two-thirds of their points based on their responses to the Institutes trust index survey, which includes questions on management credibility, job satisfaction and camaraderie. The remaining one-third of the scoring is based on responses to the Institute’s culture audit, which focuses on pay and benefits. Here is a quick snapshot of some of the benefits the construction-related companies are offering, along with their voluntary retention rates. 

#31 PCL Construction Enterprises – Denver, CO - $5,922M General Contractor

Voluntary turnover 2%

• Unlimited paid sick time for employees or their ill spouses and children
• $200 reimbursement for employee enrollment in an exercise plan or health club membership
• Onsite fitness center
• Telecommuting

 #39. TD Industries – Dallas, TX – $ 324M Construction Firm

Voluntary turnover – 7%

• Subsidized gym memberships
• Compressed workweek
• Telecommuting

#57.  DPR Construction – Redwood City, CA - $$1836M General Contractor

Voluntary turnover – 3%

• Paid sabbaticals
• Onsite fitness center
• Subsidized gym membership
• Compressed workweek
• Telecommuting

#62.  Kimley-Horn – Cary, N.C.  $461M  Engineering Consultant

Voluntary turnover – 5%

• 100% health care coverage
• Job sharing program
• Compressed workweek
• Telecommuting

76. Balfour Beatty Construction – Dallas, TX – 2,400M Commercial builder

Voluntary turnover – 5%

• Subsidized gym membership
• Job sharing program
• 2012 goal to have zero injuries on the job

92. Gilbane – Providence, RI - $3212M Construction Company

Voluntary turnover – 5%

• Subsidized gym membership
• Telecommuting

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