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Feb 20, 2013

It’s popular in the HR world to speak of an organization’s employee value proposition (EVP).

Like many HR terms, this one evokes a vague and generally positive sense of meaning but rarely has a rigorous definition. Moreover, the value proposition is often confused with the employee brand, another borrowed concept with intuitive appeal but seldom a precise interpretation.

I’d like to suggest definitions for both terms, and to point out what research says about the benefits of a fully articulated and well-delivered value proposition.

Defining the value proposition

Let’s define the value proposition as the full array of elements an organization delivers to employees in return for the contribution those employees make to the organization. It’s everything that matters to employees about their work and their organizations, the things they brag about at the neighborhood barbeque.

The value proposition encompasses the factors that some organizations categorize as total rewards: various forms of pay and benefits, plus such other programmatic elements as learning and development, flexible work arrangements and wellness programs. The value proposition also includes a range of intangible factors that don’t show up in the pay check or on the benefits statement but nonetheless carry high value.

These include challenging and meaningful work, the opportunity for personal achievement, an appealing organizational culture, a sense of purpose, and a pride-inducing set of workplace values. Organizations provide this bundle of value in return for employee contribution of knowledge, skills, talents, behaviors, time and energy.

If we define employee value proposition as the comprehensive offering that companies provide to employees, then what do we mean by “employee brand?”

What is the employee brand?

In the consumer products world, a brand is the cluster of beliefs, experiences and impressions that consumers attach to a product or service. In essence, a brand is a condensed packet of information that helps people make purchase decisions with minimal repeated analysis. It’s a mnemonic shortcut, a way to reach a cognitive (and often emotional) decision without having to re-collect and re-analyze data every time we want to choose among competing products.

But let’s be clear about what a brand isn’t. It isn’t the visual symbol, musical tones or verbal expressions we commonly link with well-known products and services. Those are brand representations, not the brands themselves.

Strong brands like Apple, Intel and BMW didn’t start by dreaming up an amusing logo, a catchy tune, or a memorable phrase. They started by understanding their consumers’ wants and needs and then innovating, engineering, and crafting their way to successful product offerings. Only then did they create visuals, tunes, and phrases.

The lesson: begin by understanding the customer, then develop the offering, then deliver the offering successfully, then define the brand promise, and then (but only then) publicize. As all savvy consumer product marketers know, the brand message is the cart. The fundamentally attractive offering is the horse. And if you want to get anywhere, the horse comes first.

Some companies have come to realize that constructing a strong value proposition, and supporting it with a compelling brand, is a worthwhile (albeit complex and multifaceted) effort. Many others, however, have yet to experience this epiphany. Towers Watson research suggests that organizations fall into one of four stages on a value proposition evolutionary scale.

Stage 1 – Tactical

First-stage organizations have made little progress in defining the coherent set of factors that make up the value proposition to employees and candidates. Nature abhors an EVP vacuum, however, so no organization can truly be without a value proposition, any more than it can be without a strategy or a set of organizational values.

All of these exist, even if not formally recognized or clearly explained. Stage 1 companies certainly provide rewards and have cultures, but employees are on their own to understand and interpret these. In our global research, about one-third of organizations fall into this category.

Stage 2 – Integrated

Organizations at the next evolutionary step have established a formal EVP and have made strides to integrate their strategies for talent and rewards management. These enterprises have typically established stated objectives for each reward and talent management program.

They’ve made key connections among those programs (for example, creating clear linkages among competencies, hiring processes, learning programs, career paths and compensation bands). They represent about one-fourth of our global data set.

Stage 3 – Communicating and Delivering

Companies at the third evolutionary step have accomplished the advances we see with Stage 2 companies. Third-stage organizations (a little less than one-fourth of our data set) have also gone further by cogently communicating the EVP to employees and delivering consistently on their EVP promises.

In effect, they have established an internal brand, sometimes expressed through clever graphics and messages, and communicated it to employees and candidates.

Stage 4 – Segmenting and Differentiating

On the foundation of an EVP solidly defined, communicated and delivered, Stage 4 organizations have differentiated their EVPs from those of their talent market competitors. We usually find that these companies have also made significant progress in customizing the EVP for critical workforce segments. They are also more likely than their less-advanced brethren to measure the effectiveness of their rewards programs.

These enterprises represent less than 20 percent of the companies we’ve studied. They are more than twice times as likely as Stage 1 companies to report financial performance substantially above their peer group.

These four stages not only represent increased sophistication, but also incremental value associated with the employee value proposition.

Stage 4 organizations believe their value propositions, reflected in their brand promises, give them a competitive advantage in the employment market. They view their employee brands as strong and, in some important way, uniquely attractive.

This advantage comes from the way they respect the order of the phrase employee value proposition: they start by understanding the employee, then defining and delivering rewards that have true value, and then conveying a clear and compelling why-you-should-care proposition to the target audiences.