U.S. Office of Personnel Management - Ensuring the Federal Government has an effective civilian workforce

Fall 2000

Strategic Rewards, "It's not just about money any more"

In today's competitive employment market, employers know that finding, hiring, and keeping skilled workers is not just about money any more. To attract, manage and retain an effective and efficient workforce, Federal employers are learning to think in terms of broader strategic rewards. This means rethinking how we can offer talented and highly-skilled employees the rewards that will help keep them engaged and focused on meeting strategic objectives.

• What are strategic rewards?
• How does performance management fit into a strategic rewards framework?
• What agencies are using a strategic rewards perspective?

What are strategic rewards? Strategic rewards embrace everything that employees value in the employment setting, and the term refers to the complete bundle of all employee reward elements. What makes these rewards strategic is the care employers must take to align their design and effects with strategic objectives. One view of Strategic Rewards as depicted here shows four quadrants of a strategic rewards framework:

Compensation Base Salary Variable Pay Job Evaluation Performance Management Paid Time Off	Benefits Health Care Retirement Savings Other Insurance
Development and Learning Training Career Development Learning Experiences Succession Planning	Work Environment Work/Life Balance Leadership Performance Support Organizational Climate

The top two quadrants, compensation and benefits, cover the areas that we traditionally think of as rewards the employer provides. These are sometimes referred to as transactional rewards because they include the tangible results of the agreement between the employee and employer. In this agreement, or transaction, the employee agrees to provide time, labor and skills in return for salary and benefits. Therefore, these rewards are readily viewed in terms of having a monetary value, such as the employee's base salary or the Federal Employees Health Benefits Program. Transactional rewards play an important part in an employee's decision about where to work and whether to stay with an organization.

The bottom two quadrants, development and learning and the work environment, cover areas that are increasingly recognized as critical contributors to employee satisfaction. They are sometimes referred to as relational rewards because they tend to represent the relationship (vs. the transaction) between the employee and employer. They are important additional rewards that can significantly enhance an employee's desire to remain with an organization. These rewards:

• can emphasize the importance of the employee to the organization;
• can influence the employee's sense of loyalty;
• are rarely seen in terms of their cash value, but can have an equally important impact when an employee is trying to decide whether to accept other employment or remain with an agency.
• represent those program areas where agencies have the greatest amount of flexibility to design programs specific to the needs of their employees.

To many employees, a supportive and engaging work environment is at least as important as health care benefits and pay. For example, dependent care support, flexible work schedules, opportunities to telecommute, flexible leave programs, meaningful employee involvement, and well-trained supervisors providing quality leadership may make all the difference in the world when a person with a hard-to-find skill is considering your job offer or when an employee with valuable institutional experience is considering a competitor's offer.

How does performance management fit into a strategic rewards framework? The performance management policies, programs, and practices that agencies carry out play an essential role in strategic rewards. Of course, in the Federal Government, performance management includes not only planning, monitoring, and rating performance, but also developing and rewarding performance.

Performance management is listed specifically in the compensation quadrant to signify that credible measures of performance and using monetary rewards to reinforce results achievement are essential parts of effective performance-oriented pay. In addition, our General Schedule pay system includes a pay progression feature where within-grade pay increases are contingent on acceptable performance and where exceptionally high performance can be recognized with a quality step increase.

Good performance management practice also plays a vital role in relational rewards. For example, one of the strategic reward quadrants is also one of performance management's key processes–development. If managers do not develop employees, they are not effectively managing employee performance and are not making best use of strategic rewards. Through monitoring performance, providing feedback, coaching for improvement, and identifying developmental needs, managers create a learning environment that can be enriching and rewarding for employees.

Performance management also plays an important role in the work environment quadrant. Studies conducted by the Hay Group, the Gallup organization, and others, show that good performance management practices create rewarding experiences for employees. For example, when surveyed about work environment issues, employees in highly-productive work groups reported high levels of agreement with the following statements:

• I know what is expected of me at work. (planning)
• In the last 6 months, someone at work has talked to me about my progress. (developing)
• In the last 7 days, I have received recognition or praise for doing good work. (rewarding)

What agencies are using a strategic rewards perspective? Many agencies have adopted this approach to help them manage their workforce. The Defense Contract Audit Agency (DCAA) and the National Credit Union Administration (NCUA) use strategic rewards to help attract and retain skilled employees.

As the Defense Department's audit agency, DCAA's human resources managers were faced with the challenge of hiring 600 entry-level auditors within 1½ years. To make the agency more attractive to potential hires, managers reinvented the way they recruit. In addition to streamlining their recruitment process, they also put emphasis on the training new hires will receive, the tuition reimbursement program, recruitment bonuses, and a 3- to 5-year career ladder. In addition to actively recruiting new employees, DCAA's managers worked to retain its current workforce. To do this, it created a work environment of trust, teamwork, and mutual respect by using effective communication and leadership at all levels. For additional information on DCAA's approach to strategic rewards, contact Dale Collins at 703-767-0139 or by email.

NCUA implemented a merit pay system that links annual pay raises directly with employee performance appraisals. The agency uses a variety of awards to recognize its employees for their contribution to its organizational goals and objectives. Using the strategic rewards approach, NCUA has created programs that allow its employees to work from home, receive reimbursement for certain home-office expenses, participate in one of three flexible work schedules, and receive travel bonuses (i.e., a cash award to recognize employees who volunteer to be in a travel status for more than 50 days a year). NCUA uses its strategic rewards as part of its recruitment program. The agency works hard to create a work environment that is family-friendly as well as challenging. For additional information on NCUA's strategic rewards programs, contact Sherry Turpenoff at 703-518-6510 or by email.

These are only two examples of the ways that Federal agencies are reexamining the way they think about, design, and deliver the wide variety of things about the work situation that employees find rewarding. Visit OPM's Strategic Compensation website to learn more about these ideas and practices. And remember - it's not just about money any more!