Employee segmentation – How can it optimise your reward offering?

Why should a reward newsletter focus on the themes of market segmentation and aspirational spending? A good question! But with all of the signs of a recession looming, it's fair to say that “consumerism” is well and truly alive. In the workplace, we would interpret that demographics do have an influence on employee choices and aspirations. Assuming that hygiene factors are satisfied, employees have higher level aspirations. There are, however, different levels of aspiration, and it manifests itself when we “lose” ourselves in a given activity. This form of motivation is defined as “flow”, when we engage in something that we love and feel “out of time”.

Ultimately, all employers would like their people to be in “flow” as this is when they will be at their most motivated. But like a consumer being discretionary about when and how they use their wallet or purse to satisfy their spending needs, an employee will be equally discerning about how much currency they are likely to exchange in terms of productive behaviour. As we all know this concept of discretionary effort translates itself into a form of employee engagement.

But what has employee engagement got to do with consumer trends, and what's in it for the employer? When it comes to reward, there is a tendency to treat their people as one homogeneous mass, but today's employees have choices.Some leading organisations have taken on board that employees are also consumers, and thus should be offered their own, individual “shopping basket” of rewards and benefits. To do this for every single employee, however, would be too complicated and costly, let alone the administrative nightmare that would entail.So leaning on the experience of consumer marketing research, there is a realisation that employees can be segmented into broad groups such as example shown in the matrix below:

To implement this marketing approach, an employer will firstly need to draw up a representative sample of employees based on geographic and demographic factors. They should then hold focus groups and construct a survey. The survey will involve the presentation of “shopping baskets” of rewards and benefits, for employees to choose and trade-off against each other. There is also a supplementary series of questions directly related to psychographic and behavioural factors in order to square the circle with segmentation.

The trade-off approach is well established in marketing and it is based on the premise that every consumer is faced with opportunity costs when it comes down to choosing a product. Therefore, a combination “phic” and behavioural factors will influence their choice. A small but growing number of employers have firmly grasped this concept and converted survey data into clearly defined and statistically significant employee segments.Finally, a marketing mix of rewards and benefits can be simulated or modelled to predict optimisation of the package for each of the employee segments.

If employers have any hope of engaging employees within current financial constraints, then they must provide differentiated “shopping baskets” of rewards, rather than persevering with the “one size fits all” approach. But, as previously stated, it requires an intelligent employee segmentation methodology, such as Conjoint. Using predictive consumer marketing techniques might render some of the HR “old school” speechless but as Confucius once said; “You can't reach your destination if you don't know your starting position.”

Evan Davidge is an independent reward consultant specialising in total reward, employee benefits and technology based solutions. More background research about Conjoint analysis and employee segmentation can be found on Evan's Davidge's website Evan's full article will be published later this week on the Reward First website.

Tips: What Are the Do's and Don'ts of Employee Segmentation?

Do

• Measure and evaluate your total reward spend
• Establish your employee segments and their characteristics
• Try and differentiate your reward package
• Understand the importance of the marketing mix in reward.

Don't

• Assume what rewards your employees want
• Persevere with a “one size fits all” approach to reward
• Believe that reward has no impact on employee engagement
• Underestimate the “consumer” values and preferences of your employees.

Website of the Month – World at Work

This month we focus on the World at Work a leading professional association dedicated to total rewards, compensation, benefits and work-life. Established in 1955 as the American Compensation Association, World at Work is well known for its conferences and certification courses for reward professionals.

Why look at the site? – While many World at Work resources are reserved for subscribing members only, it is always useful to check out topical reward news, issues and education programmes from a North American perspective.

What works well? – If you are viewing as a non-member, then it is worth taking a look at the Ryan Johnson's World at Work blogand for something differentthere is the The Compensation Conundrum blog

What could be improved? – World at Work covers many global issues to a very high standard however the focus is typically North American in perspective. A greater emphasis on international viewpoints would be welcome.

September's Question of the Month

This September Question of the month comes from the Chief Executive of a medium sized professional services business asking “As the company restructures to manage the current economic conditions, we're considering implementing grading structures. What are the pros and cons of introducing a pay or grading scheme?

A. When it comes to employee numbers, most organisations reach a critical mass, typically 100 employees or more when some type of formalised pay structures is almost inevitable. Why? They provide a recognised way of defining jobs through pay levels or bandings rather than just a ‘spot rate'. These structures drive the £value of the job relative to the external market and the internal job market. Here are the main pros and cons to be considered:

Advantages

• Pay structures set the framework that determines pay ranges for jobs and job holders
• Promote the implementation of consistent and equitable reward practices
• Provide a clear mechanism to manage jobs and people at different levels
• Easy to communicate and explain the relationship to people policies such as career progression.

Disadvantages

• Seen to be bureaucratic and to promote hierarchy in preference to flatter structures
• Provide limited flexibility to deal with pay ‘hot spots'
• Narrow pay structures can encourage people to push for higher pay bands
• Not essential in smaller organisation - those withless than 100 employees.

One of the key decisions is to determine their purpose in your organisation and how they can help to manage internal pay consistencies and external market pay expectations.

If you have a question for the October issue, please let us know by clicking here to e-mail or comment through the Just Rewards Blog

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Please note that the advice provided in this newsletter is for guidance only. If you need specific advice relating to your requirements, please call Reward First on + 44 (0) 1367 710 618.