CEO Compensation: How much is too much?

What could be the possible reasons for the ‘gravity-defying' executive compensation and are they justified?

James Gorman, CEO, Morgan Stanley, perhaps ruffled a few feathers, when in an interview to FT (October 2012) he said that in the industry the compensation ‘is way too high.’ He argued in his interview that, ‘What the Street has historically done is when revenues went up; they kept the comp-to-revenue ratio flat. When revenues went down, they increased the comp-to-revenue ratio because they said, ‘We might lose all our people. We have to increase it.’” Further according to AFL-CIO’s Executive Pay Watch Report, the ratio of CEO-to-worker pay between CEOs of the S&P 500 Index companies and U.S. workers widened to 380 times in 2011 from 343 times in 2010. These two when read in conjunction lends credence to why shareholder voices cry foul and often use terms such as ‘fat paychecks’ and ‘gravity-defying’ for the high levels of executive compensations. Yet, despite the fact that corporations in the US have been widely criticized for their approach to executive compensation, the fact remains that executive pay keeps climbing.

Is India any different when it comes to executive compensation? Not really. According to Grant Thornton International Business Report (conducted by Experian in May-June 2012) 78 percent of respondents affirmed that senior executives at large public companies were paid ‘too much.’ A recent study by consulting firm Hay Group, titled the 'Top Executive Compensation Report 2012-13', with insights from 158 organizations, reveals that as compared to the top management team – CEOs are paid 3 times more than all other senior executives. This multiplier goes up to more than 4 in industries such as Basic Resources and Retail. Yet another global study by Aon-Hewitt reveals that that India has the widest gap between the salaries of CEOs and entry-level graduates. In India, a CEO's compensation is on an average 675 times that of the minimum wage earned by entry-level graduates. The US comes second with a 423 times difference. China, interestingly, ranks far lower in the list with the ratio at 268 times. Why is it that the ratio is so skewed? Sridhar Ganesan, Rewards Practice Leader, Hay Group India, reasons, “Impatience for business results has lead to recruitment of ‘Ready-made CEOs’ and is one of the reasons for variance in the compensation multiplier across sectors.”

It is argued that if an organization does not pay CEOs at or above the market, they will leave and go to a competitor. However, Charles M. Elson et al, Director, John L. Weinberg Center for Corporate Governance at the University of Delaware, in their new research question the transferability of executive skills set. They argue that, “There is no conclusive empirical evidence that outside succession leads to more favorable corporate performance, or even that good performance at one company can accurately predict success at another.” If this be so, then does it imply that CEOs are paid higher because they are more competent that their peers?

A recent paper from the University of Pennsylvania and New York University on relationship between executive pay to executive skill, concludes that particularly in big firms, a high salary doesn't necessarily mean that a CEO is more competent than his or her peers. Taking all these into consideration, one may be tempted to reason that a higher CEO pay would result in shareholder wealth maximization. But here too, there are not enough researches that paint a positive picture.

Nevertheless, CEOs and their ilks are paid highly so that they are motivated enough to face the business challenges and, instead of making value-destroying choices, choose actions that generate the maximum value for the organization. In the present global business context, it would make more sense to keep executive compensation (a business expense) reasonable and competitive.

Packaging Vs Content - What is more important

R Venkataswaralu, for the last few days, after he made the yearly appraisals open to his employees, seemed to be more pensive than his usual self. Quite expectedly, a few of the employees who got more than what they deserved were making merry while the others who thought they deserved more but got less were discontented. The worst that Venkat (an acronym for Radhakrishnan Venkataswaralu) had to face as a result of his decision was the resignation of a few of his key people, those who had helped Venkat and his ‘strategic group’ steer the company through the rough tides of the global meltdown. Perhaps Venkat failed to realise and appreciate their contribution while preparing and finalising their appraisal (both monetary and non-monetary). He was perhaps much too taken in by packaging rather than content.

Well, nothing much should have been expected of a fabulous marketer (or rather ‘salesman’ - that is what the disgruntled lot prefer to call him) that Venkat was who was forced to don the cap of the CHRO (Chief Human Resources Officer). Packaging was his key word and when it came to taking key decisions of human ‘capital’ rather than human resource or assets he invariably gave into packaging, for that was what he had been walking and talking for the last two decades or so. Not that the dissatisfied lot were putting the blame entirely on him for he had little clue about the importance of ‘people’, the emotional damage, and the tangible cost to the company in terms of knowledge and experience that chose to walk out of the company gates. Subramanium, who for the last two years was associated with the advertising of the company, firmly believed that packaging was the best marketing strategy that could be used to glamorise a product and attract the attention of the target audience. He often advised his colleagues on the importance of packaging and never failed to chant his favourite one-liner – “sometimes packaging is so important that it costs more than the product itself.” (Do not confuse – the product is YOU). It was no surprise then that Subramanium was siding with his CHRO.

Having reached the office early on a weekend (once again - quite unusual of him) he was recollecting the past days when Shantaraman and his team would discuss and debate on product development while he and his team would assist them hand in glove on the marketing aspect of the product. The two teams which complimented each other so well would never fail to appreciate the smallest of value additions. The then CHRO, Srikant Manjhi, who chose to call it a day (well, that is what the other employees are made to believe), when the company was going through its roughest patch (the reasons for the same yet remain unknown to Venkat) would always have a word of encouragement for the two respective teams and that was evident in the appraisals as well as the annual meets. The post-appraisal days during Manjhi’s tenure saw the least ruffle - a manifestation of the fact that all was well with their respective appraisals. Venkat who was asked all of a sudden to step into Manjhi’s shoes has ever since failed to replicate the magic spell and people skills of Manjhi.

Though the company has managed to sail through the rough tides, the order books from the West are not doing great; in the recent past, there have several complaints regarding of not abiding by the product development compliance norms; key people including Shantaraman have quit. As he looks around, he fixes his eye on the last group photograph still pegged on the office cabin wall. Shantaraman, Manjhi, and Venkat all side by side; ‘three musketeers’ he uttered. What could have possibly gone wrong, he questions himself after a long lull. Why is that Manjhi and Shantaraman put in their papers and why is it that after the recent appraisals employees are not happy and resignation letters continue to pour day in and day out? Why is it that Subramanium is hearty and happy while Raghavan is disillusioned? Amidst all this uproar, the office peon makes his entry and keeps on the table few résumés; Venkat asks for a glass of water. Going through the résumés of potential candidates who would (if selected) take over the roles of the likes of Shantaraman, the only question and thought that keeps him preoccupied is what is he going to look for in a potential candidate. Is it the candidate (read – the content, talent et al) or the packaging? Is he the right person indeed? Still grappling with these thoughts, he lays his hands on Friday’s edition of the Corporate Dossier and two interesting words ‘Management Mythos’ seems to have attracted his eyeballs. He read the entire article in one go, and then said, “All this while I have behaved just like Sage Uttanka….”

Very true. Like many other Uttankas in the marketplace, Venkat too had focused solely on the packaging, ignoring the content, and perhaps this is one reason why Subramanium is happy and hearty while Raghavan, who is a lot more talented and certainly deserved better than what he was rewarded, was disillusioned. As he accepted the glass of water, he seems to have realised his folly and considers the day as an opportune time to amend his ways. But he is indeed faced with a unique dilemma. All his life he has lived on packaging so how could he all of a sudden change his track? How does one identify the real in a world filled with counterfeit as well as me-too products? What does it take to judge real content? Having made up his mind to undo his past wrongdoings he makes a hurried call to Manjhi (and thanks himself that he was in contact with Manjhi on a personal level) and explains the peculiar situation that he is faced with. Manjhi, for his part offers his ‘guru mantra’ to a dear friend in need. He then calls Raghavan to his cabin and asks him to help him in selecting potential talent who could work with him and help the company reach its glory of yesteryears. Raghavan, for once hesitates, but nevertheless obliges his CHRO, considering the future of his source of bread and butter. Having learnt his lessons the hard way, Venkat now seems determined to usher in a fresh round of talent and also wants to change the existing appraisal methods. He is keen on defining and demarcating the fine line of difference between ‘desire’ (read packaging) and ‘deserve’ (read content).

PS: The case study was written for  HUMAN FACTOR. 

Why organisations need to be focus on employee engagement...

Organisations across the world are losing money because their employees aren't fully engaged. An insight into what the recent Gallup and other studies reveal on the importance of employee engagement…

It's nothing short of an obsession. Workplaces, conclaves, seminars, industry gatherings, you name one, and you would invariably find an obsession with employee engagement - everything seems to link to it. The reasons are simple, engaged workers are more productive, perform better, motivate others and, perhaps most importantly – stay.

Deliberations apart, what is the ground reality. Gallup, as it does unfailingly, has once again come up with its employee engagement scores, and as expected, it paints a not so rosy picture. Though the survey results are for the American workforce, its reverberations are equally true for other economies too. Entirely consistent with other, equally downbeat, employee engagement surveys, Gallup’s data shows 30 percent of employees as engaged, 52 percent as disengaged, and 18 percent as actively disengaged. Simply put, the findings indicate that 70 percent of American workers are ‘not engaged’ or ‘actively disengaged’ and are emotionally disconnected from their workplaces and less likely to be productive.

Can we put to a cost to it? Yes! Gallup estimates that these actively disengaged employees cost the U.S. between $450 billion to $550 billion each year in lost productivity. 

What is it in India? According to an April 2012, Gallup study India does not have enough engagement to spare. As of 2012, 32 percent of employed Indians are actively disengaged and 60 percent are not engaged. Only 8 percent of all Indian workers are engaged - or involved in, enthusiastic about, and committed to their work. The disengaged employees, actively or otherwise, are more likely to steal from their companies, negatively influence their co-workers, miss workdays, and drive customers away.

A recent study by Towers Watson further reveals that only two in five workers (39 percent) in Asia Pacific are highly engaged at work. The rest, three-fifths of the workforce, are struggling to cope with work situations, do not provide adequate support and emotional connection. The study goes on to state that organisations with highly engaged employees report loss of an average of 7.6 workdays per year, whereas organisations with disengaged employees lost 14.1 workdays, or almost twice as many workdays per year. Significantly, disengaged employees are more likely to leave their organisations. Research shows that 58 percent of disengaged employees compared with 17.1 percent of employees with high engagement, are high retention risks. And this comes with a huge cost- the bureau of National Affairs estimates that U.S businesses lose $11 billion annually due to employee turnover. 

But who are these disengaged lot? The recent Gallup study provides a few interesting insights. Women are more engaged than men – 33 percent women were engaged, 50 percent not engaged, and 17 percent actively disengaged; while 28 percent men were engaged, 53 percent not engaged, and 19 percent actively disengaged. Remote employees were 32 percent engaged, 50 percent not engaged, and 18 percent actively disengaged. On-site employees were 28 percent engaged, 51 percent not engaged, and 20 percent actively disengaged. At a time when there is a lot of talk on millennial, the study finds that the most engaged generations are those leaving and entering the workforce. Traditionalists (defined as those at the oldest end of the spectrum, comprising 4% of the working population) were 41 percent engaged, followed by millennial at 33 percent. The study notes that more educated employees were not necessarily more engaged, perhaps because higher education levels bring with them higher expectations.

What does an engaged workforce mean for an organisation? David MacLeod and Nita Clarke in their seminal work, 'Engaging for Success: enhancing performance through employee engagement' for the UK government found a compelling correlation between employee engagement and operating income. Their study reveals that companies with low engagement scores earn an operating income 32.7 percent lower than companies with more engaged employees, while companies with a highly engaged workforce experience a 19.2 percent growth in operating income over a 12 month period. A study conducted by Corporate Leadership Council, that studied the engagement level of 50,000 employees worldwide concluded that engaged employees grow profits as much as 3x faster than competitors and that engaged employees are 87 percent less likely to leave the organisation. Further studies conducted by the likes of Tower Watson, Kenexa and LSA Global Learning Solution too have findings on similar lines. In this context McLean & Company's study states that a disengaged employee costs an organisation approximately $3,400 for every $10,000 in annual salary. 

A simple cost benefit analysis makes a strong case to have an engaged workforce. As Kevin Kruse, author of Employee Engagement 2.0, would have loved to state - high engagement among employees improves morale, reduces turnover, and improves profitability. For once, now I understand why employee engagement is an obsession.

What a leader can learn from Narendra Modi

Narendra Modi's rise in the political landscape of the country offers a few insights into what it takes to break the clutter and make a mark for oneself in the leadership space...

Depending on which side of the political spectrum you belong to, you may either be a staunch supporter or a critic of Narendra Damodardas Modi, the BJP’s official PM candidate for 2014 general elections. Cliché it may sound, while you might love him or hate him, but you certainly can’t ignore him. So much so that even his detractors would agree that Modi is a perfect blend of an astute politician and a shrewd businessman. His decisiveness, clarity of thought, personal integrity and missionary zeal, is beyond doubt. It needs no mention that, it is because of these unique selling propositions that the party decided to ignore a few well-reasoned opposition to his elevation. 

Leaving aside the internal party dynamics, a recent survey of 100 chief executives conducted by Nielsen for The Economic Times revealed that 80 percent want Modi to become prime minister. What is it that makes Modi the leaders of masses as well as classes? What are the lessons that business leaders can learn from him? 

The very reason why Modi scored a hat-trick in 2012 Gujarat elections is due to his extraordinary leadership skills. The charismatic leader possesses a number of leadership traits, and business leaders could well learn a few lessons from him and implement them too. A few take-aways

The Art & Science of Communication 

Modi has mastered the art of communication. He is one of the few politicians who has used technology to connect with his people. So be it Google+ hangouts, projected 3D public speeches or for that matter twitter, he's virtually left no stone unturned in using the current technology. It is his novel delivery mechanism that has forced leaders of India Inc as well as foreign diplomats, who once shunned him as a political bezonian, to seek a minute of his indulgence now. 

Seen in an organizational perspective, while one-to-one interaction with each and every employee may be impossible (and more so because of a global workforce), leaders need to be aware of the current trends in technology and use it to their advantage. A technologically naive person can never work for the betterment of his/her organization. Be it a small or big organization, or a huge economy; wise and correct use of technology can invariable help reach out to a larger employee base and bridge the communication gap. 

Identify opportunities and take risks

As a business leader, it is important to see opportunities when they knock on the door and grab them. Undoubtedly, opportunities come with a few risks, but it is the bigger picture that needs to be considered. Many were left wondering when Modi offered a red carpet to Tata. They couldn't figure out what Modi had envisioned when he invited Tata to shift his plant to Sanand. By providing land to industry at throw away prices, as he is accused of, Modi invested in a long term profit. Post this event, Modi became a business darling and investments poured in to Gujarat regularly after that. 

While making decisions, leaders besides keeping the present in mind need to have foresight. They need to envision the future and take decisions that are in sync with future goals. 

Quick decision making 

When Tata's decided to relocate their dream project, Modi moved with Usain Bolt-like speed and got the MoU inked within 96 hours of Tata's announcement to quit Singur. It is said that Modi makes it a point to return the call of large businessmen within 24 hours. For urgent calls, the response comes within three hours. If something cannot be done, Modi says so without beating around the bush. It’s a well known fact now that it is primarily the speed and the single-window clearance of Modi that make investors in India and abroad flock to Gujarat.

In a competitive business environment, it is not only about identifying opportunities, but a lot also depends on the speed with which decisions are taken. Procrastination should be the last word when it comes to decision making.

Be confident and play to your strengths

Modi is never low on confidence and that is probably one reason why he is able to inspire confidence in the electorate. Be it his rally in Hyderabad or for that matter his address on August 15, he exuded confidence and despite chinks in his armor he focussed on his strength - his development card. It is rare to see a political leader who unfailingly hard sells his state as an investor friendly destination, and in doing so he minces no words.

As a business leader it is important to be confident about one's organization, product, and project and let it pass on to the target audience. For the success of the brand / organization, it is equally important to hard sell and never let go an opportunity. 

Set an example 

If a leader wants his /her team to be honest, hardworking, and sincere; it goes without saying that it must begin with him. The leader needs to be honest, hardworking, sincere, set an example and make the first sacrifice. It is this track record of Modi in office that is the envy of his adversaries. He has been equally successful in selling ideas to both the masses and the classes. He firmly believes in letting his work do the talk. The biennial Vibrant Gujarat - brain child of Modi-and its success is a point in case. Likewise a true business leader too needs action.

Have a team

No one is bestowed upon with all the qualities needed to a successful leader. In fact, a leader is but the representative of his/her team at disposal. A team has members with complementing qualities and it is up to the leader as to how to leverage the talent in the team. And that’s what makes all the difference! It's worth learning a lesson or two here, from Modi. His extravagant use of technology in the 2012 election is well known. Did Modi have all knowledge about it? No! He employed right people who helped him plan out his entire campaign strategically and innovatively. And did that work? Well...

Why organisations must strive to build high-trust culture?

As trust takes a dip, invariably it is the implementation of organisational strategy that would go for a toss

Political rhetoric and sloganeering aside trust deficit is for real. Almost everywhere we turn, trust is on the decline. According to Randstad's World of Work 2012 - Asia Pacific, trust is in short supply, it states that, a third of employees across the region don't trust their leaders. Add to this the fact that only a meager 11 percent of employers rate trust as the most important attribute of a successful leader - clearly underestimating the importance of trust. An Employee Outlook survey conducted by UK's CIPD in 2012 reveals that only 36 percent felt a level of trust in their senior leaders. A more recent Edelman Trust Barometer 2013 finds that while 50 percent of respondents trusted business in general to do what is right, only 18 percent trusted business leaders to tell the truth. Cut to India, according to a study, Learning Across Culture in the Human Age, conducted by Right Management and Tucker International, rates Indian business leaders the worst at building and maintaining trusting relationships.

With organisations facing challenging times and continued economic uncertainty, trust becomes even more important. While leaders - social, political and corporate - agree that trust is important, they more often than not think it to be just another one of those 'soft issues'. In his book, ‘The Speed of Trust’ management consultant and author, Stephen Covey challenges the assumption that trust is merely a soft social virtue - a nice to have. Instead he demonstrates that trust is a hard economic driver, a learnable and measurable skill that makes organisations more profitable, people more successful and relationships more energising. 

Given the crisis and importance of trust, it becomes all the more important to ponder over a few questions - is there a measurable cost to trust, what is the return on trust and is there a tangible benefit to high trust? 

Experts reckon that trust is perhaps the most important element of a successful workplace. Companies whose employees trust them tend to have a more engaged workforce and a high efficiency work environment. On the flip side, organizations that have lost employee trust are not as successful. While high-trust creates flatter organisations distributing information, responsibility and influence across the workforce; a low trust creates hidden agendas, politics, interpersonal conflict, and protective communication. In a low trust climate, everything slows down. Ultimately it creates disengagement and unwanted employee turnover, which in turn causes low morale and impacts productivity. 

In fact, in its 2010, Ethics & Workplace survey, conducted by Deloitte, 65 percent of Fortune 1000 executives believed that trust will be a factor in voluntary employee turnover in the near future. Trust facilitates the implementation of strategy. Doesn't it stand to reason that if levels of trust between employees and their managers, or the organisation in general, are low; it will be more difficult to implement policies, practices, and eventually strategies of which they are a part?

Return on trust, RoT, too can be measured by examining the financial performance of high-trust organizations. Research by the Great Places to Work Institute, publisher of the Fortune 100 Best Companies to Work For list, has shown that between 1997-2011, high trust companies outperformed the Russell 3000 and S&P 500, posting annualised returns of 10.32 percent versus 4 percent and 3.7 percent, respectively. Additionally, those best companies provide 4 times the returns than market average for comparative low-trust companies and typically experience a 50 percent lower turnover rate. Yet another recent Watson Wyatt study shows that high trust companies outperform low trust companies by nearly 300 percent - reasons enough to build a high trust organisation. 

In a global, virtual and multicultural world, trust is bound to become a powerful element for collaborative climate. As organisations strive to create an atmosphere of trust in untrusting times, it must be kept in mind that creating a high-trust climate must go beyond one-on-one relationships with employees, to building credibility around the entire organization, its people, its brand and its reputation. 

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Why women’s need greater representation in corporate boardroom

Good corporate governance calls for greater women representation; the government’s recommendation for women directors to be mandated on corporate boards in the companies Bill is a progressive step

‘Women in the Boardroom: A Global Perspective’ a survey conducted by The Deloitte Global Centre for Corporate Governance, categorically notes that support for boardroom gender diversity is spreading in many regions, although support has come more from governments and regulators rather than from shareholders. The much awaited Companies Bill 2012, which got its nod from the Rajya Sabha on August 8, 2013 in a few of its provisions resonates what the study has found. The Bill divided into 29 chapters, 470 clauses and 7 schedules; in one of its clauses makes it mandatory for company boards to have a woman representative, something that will give a greater representation to women in corporate decision-making. Unquestionably, the move is more in sync with the requirements of the corporate world in a globalised environment.

A look at the state of representation of women in corporate boardroom makes all the more sense. Industry body Assocham in a study titled 'Corporate Women: Close the Gender Gap and Dream Big' has noted that out of 1,112 directorships of 100 companies listed on the Bombay Stock Exchange, only 59 positions -- or 5.3 per cent -- are held by women. Further, Deloitte’s November 2011 report, ‘Women in the Boardroom: A Global Perspective’ too has a similar observation. Well, India’s biggest competitor, China at 8.5 per cent had more women in the boardroom. A study, ‘Board Diversity in India’ conducted by Hyderabad-based The Institute of Public Enterprise makes an interesting observation – none of the boards of Sensex companies is led by a woman. The study further notes that, of the women directors 50% are independent directors. This makes India 38th in the world in terms of women representation on boards. 

As per McKinsey & Co’s report titled, ‘Women Matters’ companies in Asia’s leading economies have ‘strikingly’ few women in senior jobs, thereby missing out on a vital pool of talent to fuel the regions’ growth. According to the report in India women’s representation on boards and executive committees are 5 per cent and 3 per cent respectively (lower than that of China which has the representation at 8% and 9%). However, despite low women representation at senior level, gender diversity is not yet high on the strategic agenda for most companies. While over 500 companies have signed on to the global WEPs (Women’s Empowerment Principles) across the world, in India, only six of an estimated nine lakh-registered companies have committed to the WEP principles. It will be interesting to note that the new Companies Bill making provisions for appointing women to top positions by setting targets and benchmark will actually make any difference in the mindsets of corporate in the years to come. For records, women now hold 17.1% of the boardroom seats of the Fortune 500, according to the latest 2020 Women on Boards Gender Diversity Index released in October 2012. 

A recent research from the Credit Suisse Research Institute indicates that companies with more women on their boards outperform those with fewer or no female directors. For instance, Credit Suisse found that net income growth over the past six years averaged 14% for companies with women directors compared to 10% for those with no female board members. Reasons enough that India Inc makes for the opportunity cost. 

Is availability of talent a problem? Perhaps not, there are several qualified women out there. The problem perhaps lies in the process of identifying and grooming potential women directors; it is not a structured or formal one. It is cliché that the talent management process must work toward developing the required skills and competencies and create a pipeline of potential women directors – but somehow there has been a failure to identify talent pool and prepare them for serving on boards. 

Can this be tackled, and if so how? Will not the government’s mandatory norm be counterproductive, in the sense that entry standards would have to be lowered? 

The nomination committee needs to take lead in answering these set of questions. It can do so by either spending money and advertising or seeking the services of executive search firms to systematically create a database from which to choose. A more structured and formal search process coupled with the government’s norm would certainly see more women representation on corporate boards without jeopardizing the entry standards. 

Wooing employees via Employer Branding

Gyanendra Kumar Kashyap

‘Times’ have changed; thanks to the demand and supply gap in terms of talent, organisations are investing millions in branding themselves as ‘employers of choice’…

Branding, as a concept as well as a technique to be on the top of mind recall, has primarily been associated with consumer products and services. However, given the dramatic changes in the workforce trends and immense competition in the labour market, organizations are applying the principles of branding to human resource management to create an emotional relationship between an employer and employee.

Employer brand, as it is referred to, is about capturing the essence of an organization in a way that engages current and prospective talent. An employer brand conveys the  ‘value  proposition’ ­ the totality of the  organization’s culture, systems, attitudes, and  employee relationship  along  with encouraging  people to embrace and  share  goals for success, productivity, and  satisfaction both on personal and professional levels. In essence, it is a differentiator that helps an organization differentiate itself from its peer by creating its branded factors as its USP (unique selling proposition) for employee satisfaction and happiness resulting in retention, productivity and efficiency.

Is employer branding therefore an indispensable strategy or a mere fad? Literature survey and reports in the media lends a belief that employer branding offers a fine blend of the science of marketing with the art of human relations management and is one of the strongest bulwark against the scourge of unbridled employee attrition.

The Building Blocks

         

What does it take to build an employer brand – one that is able to communicate and ingrain in minds of employees the most critical value proposition that their organization stands for and in effect help increase the likelihood of employees becoming brand ambassadors and advocates?

Invariably, Employee Value Proposition, EVP, is at the heart of developing and managing an employer branding. Employer Value Proposition speaks about the direct and indirect benefits of working with the brand. It also speaks about the core aspects of the association. EVP is influenced by the organization's values, culture, leadership, environment, and talent and reward programs. Once an organization’s EVP is formulated, it is then gradually integrated with the HR process to ensure delivery of the brand promise and consistent employee experience.

Like any other consumer brand that expresses inherent qualities and images, an employer brand too is representative of the corporate identity to its current and prospective employees, headhunters, and other stakeholders who get associated with the people side of the corporate. Hence it becomes all the more important to have a consistency between the internal and external aspects of employer brand. The internal factors are the culture, HR practices, and the overall employment experience that a current employee has. The external factors are what a prospective employee feels about the organization. Instances of inconsistency between the promises made to the external world with respect to what is happening internally can create conflict. The new joinees will expect what was promised through branding and the current employees on the other hand might feel cheated by the practices followed. Eventually, inconsistency in ensuring delivery of brand promise will leave both the current and future employees unhappy.

How can organizations ensure the delivery of brand promise as well as consistency of employee experience? Articles published in the media and other survey reports lend a perception that the key lies in communicating a set of unifying attributes that help employees in identifying with their employer. Organizations take concerted efforts to engrain them internally as well as externally. A few organisations have moved a step further; the EVP is incorporated in the internal and external communication, including the communication used in the context of lateral hiring and campus hiring. It enables them to attract the right profile of talent – who will be effective and highly engaged in their organization.

Organisations also use internal mapping and external brand image to chart out the important attributes that resonate with majority of employees to create its value proposition for its employees. There are others for whom the key constituents of employer brand are its set of core values – which includes open communication, generosity, and leading by example; and vision of the organization to build and sustain reputation. 

What do you communicate?

There is no doubts on an organization’s employer brand being a very important mode of communicating to the current and potential employees the position and value of a firm. The approach as to how an organization wants to ‘position’ itself is not a ‘one shoe fits all’ strategy. Depending on the industry, the life-cycle stage and the economic dynamics, the branding strategy can be different. For example, in the creative industry an employer brand typically aims to communicate the creative environment in the workplace and a fun place to work. A technology or a beverage brand has mass marketing campaigns. The employer brand in the professional services industry, however, targets professionals and not masses. The messaging in an employer brand in the professional services industry therefore is aligned to what professionals can relate to, such as the promise of developing technical expertise and longevity of careers.

Are you investing enough?

Though, the importance of building an incredible employer brand is beyond doubt, there is an investment that has to be made into developing and managing the brand. And thus the primary question: Are you investing enough?

Who is the ‘employer brand’ manager?

While there is no unanimity or even general consensus as to who should own the process of creation and execution of an organization’s employer branding campaign, it is a given fact that building a strong employer brand cannot be the sole responsibility of Human Resources or the Marketing department for that matter. As a matter of fact the entire philosophy of ‘employer brand’ has to be co-owned. The initiative must follow the top down approach, starting from the leadership at the helm and must include Human Resources, Marketing and Finance. In fact, everyone in the organization should be encouraged to take up the role of an ambassador of the brand.

How is the campaign propagated?

The success of any brand campaign, however brilliantly designed, to large extent depends on how well it is propagated, whether or not it has been able to reach its desired target audience. This becomes all the more critical when speaking from an organization’s ‘employer brand’ perspective; for the basic aim of the entire philosophy is to attract, retain and engage current and potential talent. There is no dearth of media vehicles to propagate its employer brand, however not all serves the purpose. Like a consumer product brand which has the leeway of resorting to ‘road blocking’; organizations use a similar concept when they reach out to campuses or job fairs or job sites – where they  can register their presence in the minds of the required target talent space.

In order to portray their organization as an employer of choice, organisations cite career website, word-of-mouth and social media as three top channels that their organizations invest in to promote their employer brand.

How do you measure effectiveness?

All organizations are different. There is no preset standard of measurements that suits every organization. But how does an organization measure the effectiveness of its employer brand campaign? From an organisation’s perspective it is important to measure the employer branding impact on individual productivity. For some a measure of a better employer brand would be the ratio of number of offers given to people to the number of people who finally joined. Examples of traditional metrics that have been used to measure ROI on employer branding activities include: cost per hire, engagement levels, time to fill, retention rates, turnover rates, absenteeism, headcount, time to productivity, total costs of labor to revenue, candidate satisfaction rates etc.

Conclusion

An effective employer brand in essence embodies all that the organization has to offer vis a vis what the employees expect from the organization.  Having an effective employer brand helps organizations attract, engage and retain talent. Studies show that having an employer brand significantly impacts savings by enhancing retention (reducing replacement hire costs) and engagement levels of new hires and existing employees. In an environment of economic uncertainty coupled with talent crunch, an effective ‘employer brand’ is perhaps a panacea to ride over the tide.