A loss of employee loyalty, intense competition for top talent, and an unparalleled emphasis onperformance have combined to dramatically alter pay strategies.

The changes are bringing a new level of maturity to compensation practices, especially in North America,according to a report by the Hay Group.

"Incentive compensation, once rare, is common for many employees; salary increases seem to patterneconomic performance; bonuses are bigger for the best-performing organizations; and a large percentage ofemployees, including executives, experienced total compensation decline in 1999 as a result of 1998performance," says Michael Thompson, one of the report's authors. Thompson is vice president andmanaging director for performance and reward consulting at the Hay Group.

An increased focus on the bottom line has dramatically changed the employee/employer relationship:"cradle to grave" employment is gone, and so too is employee commitment and trust, according to thereport.

At the same time, the increased emphasis on performance and competition for talent has increased the useof a variety of compensation tactics. Hiring bonuses, for example, were once limited to senior executivesbut are now frequently offered to new college graduates.

Incentive Compensation Common

Managing performance has never been more challenging, according to Thompson. "It's not just about theright strategy; it's about operational implementation. Reward programs are simply one lever in theoperational implementation of a business strategy. Their effectiveness is determined not by the design of thereward program alone but also by its integration with the other levers of business performance."

Reward programs should encompass more than pay and benefits. The future of reward systems includes theactive management of the work environment and the culture to shape the nature of work and its context,according to Thompson.

"Employees are actively seeking organizations whose values fit their own. Flexible work hours,sabbaticals, child care, and casual dress codes are all characteristic of this new reward environment -- anenvironment that must be tailored to the needs of both the business and its employees," he says.

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