A radical change in its employee reward strategy has energised a product development push by food giant Heinz UK and Ireland, says Nicola Sullivan.
Foods such as soup and baked beans often come into their own during tough economic times as consumers look for affordable, nutritious staples. Evidence that consumers are happy to eat more of this type of comfort food came in the three months to 28 January 2009, when US-based food giant Heinz reported rises of 21% in soup sales and about 7% in baked bean sales in the UK.
In that quarter, the firm’s global net income rose by 11% to $242m (£168m). This followed a price increase for some of its most popular brands. But Heinz does not just rely on its traditional brands and familiar packaging to sustain its profits. Snap pots – small microwaveable containers of baked beans – and farmer’s market-style soups are just two of the latest Heinz products to appear on supermarket shelves.
Product development has been the crux of the company’s business objectives in recent years. Nigel Perry, HR director of Heinz UK and Ireland, says the firm has re-energised its product development programme to boost consumer engagement. In February, it launched a direct television advertising campaign, bringing back its famous slogan from the 1960s simply telling consumers that “Beanz Meanz Heinz”.
Underpinning the success of the company’s household brands in the UK is an assertive and aggressive HR talent management strategy. Just over two years ago, the company’s Heinz UK and Ireland business unit conducted what Perry describes as a “talent upgrade”. He was tasked with overseeing the process, which saw the replacement of about two-thirds of the division’s top 50 managers, and some senior board-level employees.
Fresh talent was flown in to work at Heinz UK and Ireland from all corners of the globe, including company sites in the US, Australia and Europe.
Senior employees also came on board from other companies such as Coca Cola, Tetrapet and Gillette. Once the new team had been created, which took about six months, Heinz UK and Ireland got to work on changing the way its managers were rewarded. This involved aligning the company’s goals more closely with its distribution of bonuses. Values such as achievement, accountability, integrity and urgency were established to underpin the firm’s new reward mechanism, as well as to encourage desired behaviours in staff.
“One of the things we realised fairly early on was that, within Heinz, we were rewarding people for effort, and were not rewarding and encouraging a focus on results,” says Perry. “We were trying to change that balance to ensure effort was always important and people were giving 100%. Even if people are giving discretionary effort, if you are not driving the results coming out of it, that is only half the battle.”
Managers working across Heinz UK and Ireland still receive annual bonuses, but are now rewarded on how successfully they meet revised targets, which are set every 90 days. Managers are also divided into groups of high and low achievers. They could find themselves in the lower group even if they hit their targets, but are perceived to be coasting and putting in only the minimum effort required.
Those that rank in the top 15% or 20% of performers can expect to receive a bonus multiplier of between 1.5% and 1.75% on top of their annual bonus, while those that fall into the bottom 15% or 20% will get just half their annual bonus. The merit spend – the average increase a manager gets if their performance is on target – also increases for those deemed high achievers.
“If you underdeliver or just deliver minimum effort, you will get only half of your bonus and that is quite a big message from the organisation in terms of getting results,” says Perry. “Do it in the right way and get quite significant rewards, or be in the other category and see your rewards decay.”
In short, if staff cannot handle this tough, unforgiving bonus strategy, they can go elsewhere. If that happens, Perry simply sees it as the company’s way of managing out the workforce’s weaker incumbents.
“Over time, [employees] in the low-achiever category will self-select themselves out,” he says. “They get fed up with getting half a bonus, they get fed up with getting a below-inflation increase and they say ‘you know what, I want to go somewhere else’ and we say ‘that is fine’.”
The scheme has been piloted over the last three years with Heinz’s 1,600 managers based in the UK and Ireland and at sites in Europe, and there are plans to continue the pilot for a fourth year. Heinz has no immediate plans to roll out the scheme in the US, partly because of the contrasting reward culture there. Its US employees typically receive larger bonuses, for example.
This rigorous reward and talent management strategy has played a significant part in boosting Heinz UK and Ireland’s previously static bottom- and top-line profits. “Heinz was kind of a sleeping giant, a very traditional, fantastic brand equity, extremely well known around British households with really good, strong market shares,” says Perry. “But we really needed to get the engine going. A bit like a super tanker, we needed get it moving and get it turning.”
The UK and Ireland division is carrying forward a number of initiatives to increase the spending power of frontline employees. Last November, it revamped its reward offering by launching a voluntary benefits scheme to its 3,500 employees. Through the scheme, staff receive a discount card that they can use at a variety of retailers to buy household essentials, petrol and groceries. They can also purchase discounted retail vouchers and get money off products when shopping online. The scheme, which is provided by P&MM and Serenity Flex, also gives members access to an online travel agency where they can obtain discounts on flights and holidays.
Heinz has also worked with Serenity Flex to introduce a salary sacrifice arrangement for its largest defined benefit (DB) pension scheme, as well as its defined contribution (DC) pension plans. The 1,500 staff belonging to the DB scheme, which is closed to new members, pay 6% in contributions. The 600 members of its trust-based DC scheme contribute between 3% and 5% of salary, and receive a matching employer contribution plus an additional 2%.
In April, the firm implemented the same salary sacrifice arrangement for staff enrolled into its remaining pension schemes, including its smallest DB scheme.
Last year, Heinz UK and Ireland conducted a staff survey to ascertain whether its benefits scheme was enhancing employees’ social and economic wellbeing. This unearthed a number of common staff misconceptions about reward.
The HR team realised that some employees focused only on salary and did not factor in other benefits when making decisions about their future with the company. To improve communication of the value of benefits to its employees, Heinz UK and Ireland is planning to launch total reward statements for staff in July this year.
In its drive to communicate benefits more effectively, the organisation has also worked on its employer and employee branding strategy, which has been designed to create a greater correlation between the Heinz brands and company benefits.
The new strategy, which included the creation of colourful company-branded communication materials featuring cartoons, was drawn up following discussions with staff about the firm’s qualities. Employee feedback was used to come up with five attributes, including “global company, small company feel” and “brands that enhance people’s everyday lives”. The strapline “Talent Shinz at Heinz” was penned for use on the firm’s HR and employee benefits materials.
Perry adds: “We have a fantastic consumer brand in the marketplace and we need a much better connection between the consumer brand and what our employees think are the core strengths of working for Heinz.”
Heinz at a glance:
The HJ Heinz company dates back to 1869 when two American businessmen, Henry J Heinz and L Clarence Noble, branched out into food, launching Heinz & Noble. The company’s first product was “Henry’s pure and superior grated horseradish”.
Over the years, Henry Heinz developed the business and was the brainchild behind Heinz 57 Varieties, which were launched in 1892.
The firm’s first baked beans were sold to the public in 1895 and came to the UK in 1901.
Heinz is now a global business which employs about 32,500 staff, with 3,500 of these in the UK and Ireland business unit.
In the three months ending 28 January 2009, Heinz’s third-quarter results showed an 11% rise in net income to $242m (£168m). The company’s overall sales in this third quarter of $2.41bn were 7.5% down on the previous year, as a result of foreign exchange rates.
At the same time, the volume sales at Heinz Europe grew by 5%, with net pricing up 10%.
In the fiscal year from May 2007 to April 2008 Heinz delivered record growth, achieving sales of $10.1bn globally. In addition, volume sales grew by 6.9% – the best figure the company has achieved for at least 15 years. In the same year, Heinz reported net income of $845m, compared with $786m in 2006/07.
Meanwhile, from May 2007 to April 2008, Heinz Europe’s sales increased by $456m, or 14.8%, to $3.53bn, driven by product innovation and a greater focus on key brands.
Benefits at Heinz:
Defined benefit (DB) pension scheme, which is closed to new members.
Trust-based defined contribution (DC) pension scheme open to new employees.
Income protection available through DC pension scheme.
Private medical insurance (PMI) for management-level employees.
Range of employee discounts.
Shares and bonuses
Share purchase scheme available to all employees.
Discretionary bonus scheme for all employees.
Company car or cash allowance available for senior managers.
27 days as standard.
Employees can buy up to a further five days a year.
Subsidised canteen for all employees.
Social club and company shop for staff at some locations.
Long-service awards for all employees
Nigel Perry, HR director for Heinz UK and Ireland, joined the firm in 2004 after seven years as group HR director at Brake Brothers.
Prior to this, Perry spent 12 years at Unilever which he joined as a graduate trainee in 1983. He carried out a number of employee relations and development jobs across the group, which at the time was known as Vandenburg Foods. Perry also spent time in Jeddah, Saudi Arabia, where he was responsible for the company’s Middle East and North Africa regions.
He says one of his biggest challenges at Heinz UK and Ireland is to ensure the work he does to retain staff talent continues to have the same impact during the recession.
“The biggest challenge from a business perspective is to continue to grow within a recessionary environment and we would say that the whole people piece is really fundamental to that,’ he explains.
“The things we have been doing when times were good in headline terms are still the right things, but the levers that we are pulling to make them happen are different in a recession. It is the key challenge for us.”
Tracey Rogers, customer marketing and communications manager at Heinz UK and Ireland, joined the firm 17 years ago. She is responsible for the delivery and execution of its sales communications strategy, which provides sales representatives with the tools, information and training they need to engage customers and drive profitable growth. Rogers also manages how the company spends its customer marketing budget.
She is impressed with the lifestyle benefits Heinz offers following the revamp of its voluntary benefits scheme in November. Through the scheme, she can buy discounted vouchers from a variety of retailers.
“I used the Marks and Spencer vouchers to purchase my Christmas presents,” she says. “I gained a 5.5% saving on the vouchers and because I shopped on a 20% discount day, I received an additional 20% off, helping my Christmas budget go further. For Sainsbury’s, I purchase vouchers and use them for my weekly shopping, so I get savings every week. Vouchers are also very good if you want to give someone a flexible treat without giving them cash.”