Editor's Note: This Classic post was originally published a little earlier in the movement to employee segmentation in reward design, but it raises questions that remain relevant today as we all grapple with this reality.
It's the beginning of the end of the age of treating our workforces as a semi-homogenous whole, pay-wise.
A number of forces are converging to push us this way, ranging from the crushing pressure to ensure our compensation investments deliver business results to the availability of technology and tools that give us a window into information we could only guess at in the past.
That's right. Welcome to the Age of Segmentation, my friends. If you aren't already there, expect to face the question soon in a leadership conversation near you.
Which takes me to the real point of my post. As the segmentation imperative overtakes us, I have noticed two distinct threads emerging. I am also seeing that the differences between these two threads is not being called out as clearly as it should be, even escaping notice entirely in some cases. This blurriness may become an obstacle in our efforts to get on board the segmentation train and make sure it delivers for our organizations.
(1) The "Employee as Consumer" Approach. This approach, which draws from consumer marketing principles, seeks to understand and segment employees by dimensions that reflect their wants, needs, values and preferences. This type of segmentation often begins with traditional demographic information and preferences gleaned from employee surveys, but in more advanced efforts can lead to developing sophisticated employee profiles based on reward preferences. The purpose here is to use segmentation to deliver a reward package that maximizes employee appreciation and satisfaction for the monies invested.
(2) The "Employee as Capital" Approach. This approach, which is grounded in the strategy and priorities of the employer, seeks to understand and segment employees by the talent variables that are most critical to the success of the employer's business. This segmentation might focus on the competencies most important to emerging and anticipated future competitive needs, the roles with the biggest impact on the business model, or the facets of employee performance most key to strategy execution, to name a few. The purpose here is to use segmentation to deliver a reward package that maximizes business impact for the monies invested.
Because we in HR have had a historic tendency to approach things from the employee perspective, we may be drawn to and initially more comfortable with #1 above. This isn't a bad thing, in and of itself. Understanding employee preferences and values can only be a help in designing effective reward programs. The problem comes when we stop there, or when we do #1 thinking that we're also doing #2. For too many of us, understanding business strategy and the economics of how our organizations create value, and then being able to translate those into talent priorities, still falls at the edge or even outside of our comfort zones.
Ideally our segmentation efforts will address both #1 and #2, allowing us to design reward packages that maximize both employee satisfaction and business impact for the monies spent. There should be nobody in a better position to bring these two threads together than HR and the compensation function.
Are we ready to rise to the challenge?
Ann Bares is the Founder and Editor of Compensation Café, Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations. She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys reading in her spare time. Follow her on Twitter at @annbares.
Creative Commons image "Examining Clouds" by katerha
As Churchill said, "Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."
And I'm not certain if this is the end of the beginning or the beginning of the end of the homogeneous treatment of the workforce. Regardless, good treatment of segmentation and managing a differentiated workforce.
I must be a bad HR person . . . because I've invariably believed employees' needs are always subordinate to the needs of the organization. But I've been told I'm a mean person . . . Alternately, I want to believe that maybe I'm just a good compensation person.
I like how you brought together what initially appeared to be two separate dichotomies. I would agree that one of the keys to segmentation is identifying the key sources of your organization's true competitive advantage - and investing and hanging onto that. And the second piece (intentionally in that order) is employee satisfaction and engagement - and knowing the rewards preferences of that segment. Ultimately we'll solve and execute on those preferences down to the individual employee level, but that's still 2-3 years over the horizon. Trust me, it is.
Posted by: Chris Dobyns | 10/25/2019 at 01:27 PM
Chris,
This is funny because I was thinking of you when I posted this, knowing that you have an interest in and a focus on this topic.
I agree that it's going to be an interesting journey with lots to learn along the way and the world changing under our feet as we go. In a tight labor market as example, particularly one that's tight for some critical skills, it could be hard to separate employee satisfaction/retention and competitive advantage for some employers.
I believe you about the horizon on this - and I suspect it will shift and mutate as we think we're drawing closer. That seems to be the way.
Thanks for weighing in!
Posted by: Ann Bares | 10/25/2019 at 01:41 PM