Employee segmentation: the commercial opportunity for reward

Does your organisation take a one-size-fits-all approach to reward? Benjamin Viney looks at how businesses are using data to tailor reward programmes for different workforce segments, to increase employee satisfaction, reduce cost and gain a competitive edge.

Without a nuanced approach to segmentation, an employer could be providing high-cost benefits to staff who would prefer different rewards that better suit their personal values yet cost the company less”

Despite more complex reward challenges and changing employee demographics and expectations, most companies still do not really segment their rewards programmes, or seek to understand employee preferences in a way that today’s employees have come to expect.

Segmentation is the practice of dividing your customers up into distinct groups that share common characteristics, in order to target those customers effectively. As modern consumers, most of us know just how sophisticated segmentation has become in the realm of marketing.

Our personal and behavioural information is collected by marketers at every opportunity to build up their understanding of our profile and our potential value as a customer.

We are well used to receiving “segmented” or customised communications that companies believe match our preferences – such as sponsored posts on social media tailored to our interests, websites suggesting products we might like, or supermarkets issuing bespoke vouchers. Intelligent use of data that underpins personalisation is so ubiquitous these days that it is not just accepted, but expected.

A recent study in the insurance sector showed that people are more than willing to volunteer their personal data in exchange for a discounted quote or bespoke offer. They are actively seeking a two-way relationship with their supplier.

This is no longer a marketing technique that is simply “pushed” by companies – there is an equally strong “pull” from consumers to be treated as individuals, especially from the digitally-savvy millennials.

Customised reward

Inevitably, these new expectations filter into our professional lives. The employer-employee relationship comes under particular scrutiny because companies have so much to gain – and, typically, so far to go – in “understanding their customer”.

This is despite the fact that HR professionals have long recognised segmentation as pivotal to improving employee attraction and retention, especially when it comes to reward. Recent research at Willis Towers Watson showed that employers that are able to offer customised programmes are three times more likely to have highly-engaged staff and 1.5 times more likely to deliver better financial performances than their peers.

So not only does the “one-size-fits-all” approach to reward prevent a company from delivering the personalised experience expected by their modern workforce, it closes the door to potentially significant commercial opportunities.

In simple terms, without a nuanced approach to segmentation, an employer could be providing high-cost benefits to staff who would prefer different rewards that better suit their personal values yet cost the company less.

The stakes are raised further when we consider the seismic shifts in demographics that many large organisations are witnessing. Major profile changes in terms of age, gender, ethnicity and geography have created a workforce with differing needs – and reward preferences – to their counterparts a decade ago. It is clear that, in most cases, this calls for a fundamental review of reward strategy, based on an accurate picture of the demographic profile of employees.

This was the goal of one of our multi-national clients who recently undertook a data-driven analysis of its workforce across 80 countries, tracking trends over a 10-year period. It identified that its staff numbers had decreased proportionately by 30% in the US and increased proportionately by a corresponding amount in Asia-Pacific. Half of its employees in the US were aged between 45 and 64, whereas 65% in China were aged between 16 and 34. This radical shift from West to East, and to a younger workforce, demonstrated the need to reevaluate a decade-old, US-centric reward focus.

Although such profiling exercises are a good starting point, conclusions cannot necessarily be drawn based on demographic segments alone. As The Economist points out, many studies that seek to illustrate generational differences merely serve to highlight “how much workers of different generations have in common” and that “individual differences are always bigger than generational differences.”

Forward-thinking companies are combining demographic profiling with technology-led, advanced surveying techniques that shed light on a range of new characteristics, including attitudes to work, life aspirations, career goals, learning styles and behavioural patterns.

This leads to far greater insight and understanding of reward preferences – akin to “customer profiling” in the consumer world.

Conjoint analysis for reward

A common theme for global HR functions is the particular challenge posed by “millennials” in the workplace. Our recent work with a fast-growth, high-tech company underlined the risk of making clichéd assumptions about this segment.

The board’s instinct was that the workforce, with an average age of 27, would not value company pension contributions as part of their employment deal. However, a conjoint survey – where employees are asked to rank and trade off elements of their total rewards portfolio – revealed quite the opposite. Employee focus groups confirmed that pension contributions matched by the company was indeed highly valued.

The theory of conjoint analysis, developed in the world of market research, is based on a structured, statistically-derived pattern of questions that produce a reliable hierarchy of reward preferences. These enable employers to intelligently challenge assumptions (particularly related to salary) and provide a deeper, data-driven knowledge of the workforce that goes way beyond the capabilities of a traditional employee survey.

I should emphasise that the aim of capturing, analysing and interpreting employee preferences is not necessarily to tailor reward packages to individual employees. It is to learn how best to segment the modern workforce, how to deliver the tailored experience that is expected in today’s technology-driven, customer-centric world, and how to ensure that employees are listened to, and understood.

In tandem with cost-optimisation analysis, HR functions are now in a position to use technology to simultaneously identify ways to increase employee satisfaction with rewards whilst reducing, or at least containing, the overall cost to the business.

Benjamin Viney

About Benjamin Viney

Benjamin Viney is senior consultant for talent and rewards at Willis Towers Watson.
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