Compensation Cafe

3 Reasons Why Bonuses Are Simply “Too Much”

In the last few weeks, I’ve read several articles on why the bonus culture has failed. Most of the articles centered on the two areas where I believe this failure is most prominent – banking and financial institutions and the corner office.

The articles served to highlight for me three ways in which the bonuses are simply “too much.”

1) Too much weight given to bonus vs. base pay

The word “bonus” has lost all meaning when people expect to receive them as part of their base compensation (a topic I’ve written about here before).

From the UK paper, The Guardian:

Banks say bonus pools have shrunk and payouts are being capped, but outside the glitzy world of investment banking, those used to drawing just an annual salary are increasingly baffled by a system of hefty incentivisation on top of already high pay. …

For Labour leader Ed Miliband, the bonus culture has been "corrosive" for Britain's economy and its society. He argues the meaning of the term "bonus" has been lost along the years.

"Exceptional rewards for exceptional performance means million-pound bonuses should not be handed out to people for just doing their job," he said in a speech on Friday.

In fact, he concluded, the system had failed. "It has enriched individual bankers, but weakened the banking sector as a whole by encouraging a form of risk which crossed the line into sheer recklessness," said Miliband. "For all the reform of the way bonuses are paid, they remain on a scale beyond the imagination of the vast majority of the population."

2) Too much of a gap between the total compensation for those at the top vs. those in the trenches

From a CEO compensation perspective in the US, Ed Frauenheim, editor-in-chief of Workforce Management magazine, suggests the “Business Buffett Rule”:

“For a company paying the federal minimum wage of $7.25 an hour (about $15,000 a year for a full-time worker), what if the total compensation for the CEO was capped at 100 times that? That means a CEO's annual income would be about $1.5 million. As pay goes, that's not peanuts. But it also is a far cry from packages that have ballooned for many execs into the tens and hundreds of millions of dollars.”

Frauenheim goes on to outline the benefits of such an approach, including boosting employee morale, better leader selection, and a long-term executive mindset instead of “working to the quarter.”

3) Too much complexity that only encourages negative repercussions

Back across the pond, the UK Sunday Times also addressed ideas for more appropriate CEO compensation featured ideas from Bruno Frey, a professor of behavioural science at Warwick Business School:

He wants companies to drop pay-for-performance schemes and their complicated criteria. Instead, at the end of each year boards should make a simple judgment on whether a bonus is deserved.

“Most businesses think people will work better if they are offered a bonus, which is why they create a direct link between wages and performance,” said Frey. “But often this is not the case at all, and sometimes the link can actually have negative consequences.”

At its worst it can mean that people take company-threatening risks to meet the criteria for a bonus. It also means that executives may focus too much on doing what is needed to meet their performance criteria at the expense of other tasks — even if these are more important.

Do you think bonuses have become “too much?” What alternative do you see as generating a more appropriate reward and recognition for work well done – at all levels of the organization?

 As Globoforce’s Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

Is Viral Pay Contagious?

With a name like ‘viral pay,’ it’s bound to get attention.  But is it just a catchy name or is there more to it?

I was skeptical at first because having your bonus decided by your colleagues sounds a bit like ‘being judged by a jury of your peers,’ which as we all know is not always fun or fair.  But reading this article at Fast Company provided an opportunity to re-think my assumptions. 

Whatever your rewards policy du jour, human frailty threads through every aspect of management, team work and incentives.  If you leave rewards up to managers you run the risk of centralized human frailty in the form of favoritism, whereas if you open it up to the community you risk decentralized human frailty in the form of a popularity contest. 

Think about it: Who typically gets voted off the island, the least qualified person or the least likeable person?  I don’t want to generalize here but the last person standing tends to be a charismatic buffoon rather than a highly competent person with an offputting personality.

What it essentially comes down to is this: People vote for people they like to the extent that it doesn’t create a threat or disadvantage to themselves. 

Now let’s examine the possible impact of human frailty on viral pay.  On the positive side, allowing everyone to decide about rewards decreases the impact of manager bias and may increase the likelihood ‘silent heroes’ receiving recognition.  It also encourages teamwork and cooperation because personal rewards depend on garnering widespread good will. 

On the downside, while relationship building is very important, we don’t want it to take a back seat to actual work getting done.  There’s also a risk of employees trying to ‘game’ the system, for example by trading rewards.  Finally, people do have a perverse streak and may be reluctant to reward people they think are already too popular or successful. 

Getting back to the article, I liked IGN Entertainment’s approach to viral pay because it includes several checks and balances to rise above personal bias and encourage fair play:

• Rewards are anonymous, so there's no currying favor.
• Everyone has the same amount to allocate so it's harder to game.
• Some rewards are held back for manager discretion, so collective opinion is balanced by personal judgment.

Whether you buy into all this or not, viral pay is just one more step in the direction of a more collective approach to work and leadership.  As I recently wrote in Who Moved My Manager?, the modern workforce is 'global, virtual, fluid, contingent, self-managing, and project-oriented,' which impacts how people work together as well as how they are managed. 

In other words, whether it sticks or not, viral pay is part of a larger trend rather than an isolated fad.  For more information and great insights, I recommend listening to Ann Bares and Stephanie Thomas' recent podast on viral pay.

Interestingly, no one seems to be suggesting that employees vote on executive bonuses. . .

Picture courtesy of kool-stuffs.blogspot.com.

Laura Schroeder is a global talent specialist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience envisioning, designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing (well, kicking things) and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

Incentives For Their Own Sake

It's fairly easy these days to find articles written by those who advocate increasing the eligibility of employee incentives.  Their recommendation is to push inclusion further and further down the organization's hierarchy.  What a grand concept!  Everybody wins.  The argument is that all employees affect a company’s success, that each and every one will chase the almighty dollar of variable pay, and that the opportunity for ever larger rewards will motivate them to do great things.  All of which would in turn deliver improved financial results for the company's bottom line.

Maybe.

And maybe it's not such a good idea after all.  Perhaps it's a bit of a crap shoot as to whether the corresponding higher compensation costs will result in improved financial gains.  Consider the challenges faced when you contemplate a broader eligibility for your annual incentive program.

What's The Plan?

Start with a re-examination of the basics.  What do you consider an incentive element when designing a compensation program?  My definition is a reward for performance that goes above and beyond the norm, or beyond what is expected.  Thus it shouldn't be a reward for performance that would have occurred as a matter of course.  The intent for offering an incentive is to prompt a change in behavior, to get employees to do something they wouldn't ordinarily have done, and to get them to do it solely because they have been offered a financial reward to perform both their regular tasks and to accomplish stated business objectives that go beyond the norm.

That should be the plan.

And because these objectives are noteworthy, you would expect that they would differ from year to year, as the needs of the business evolve and adapt to changing business conditions.  This emphasis on annual objectives reinforces the intent that incentives should be designed to reward effort above and beyond those duties listed in the job description.  They shouldn't be repetitive, year after year.  That's what the job description is for.

Incentive rewards should also not be provided simply because an employee performs their job well.  That particular carrot should be the role of the annual merit increase.  In fact, such an exercise would be considered “double-dipping”, or paying for the same performance twice.  You should not be using an incentive as an inducement to get employees to perform their expected duties.  Again, that's paying twice to reinforce the same behavior.  It’s also using compensation to replace the leader’s own responsibility to manage their staff.

Sometimes You Win; Sometimes You Don't

When deciding on whether to add a variable pay opportunity to an existing base salary compensation model, you need to ask yourself, "what will the company receive in return for the increased costs (variable pay) of an incentive program?"  If you are planning to increase your targeted compensation costs by 5% or 10% of the base salaries of an affected group, how will you answer the ROI question?

Hint:  You had better provide a business (financial) rationale, and not some subjective phraseology like “survey says” or “everyone else is doing it" or even “it’s the right thing to do.’  Management tends to frown on such trivial rationalizations.

It's also worth noting that employees lower in the hierarchy have a greatly reduced line of sight between their actions and business success.  This entails having to create quantifiable objectives for performance (you are quantifying, right?) that should integrate vertically with department, functional and / or organization objectives.  If you don't integrate what you’re telling employees to do, you may find yourself paying out incentive rewards when the company as a whole has not been successful.  Keep questioning:

Yes, you did it, but was it important?   Did your accomplishment support the broader organization's objectives?

As a counterpoint to the eligibility question I'm often asked about Gainsharing programs.  These initiatives can be a useful method of introducing incentives to select employee groups who have a direct line of sight to potential savings.  They can affect real change.  However, successful plans eventually kill themselves off as viable gains are achieved (low hanging fruit) and payments becomes less and less robust after the easy pickings are collected.

So to recap, let's review the business urgency for lowering incentive eligibility to below the management ranks.

• Is the employee line of sight (performance / business results) direct, or remote?

• Can you quantify the expected ROI?

• Can you balance the increased compensation costs against hard financial gains for the organization?

• Would the variable pay become strictly an added cost, or would any portion of base salary be at risk?

If you have a reasonable doubt on any of these points, I suggest you think long and hard before implementing such a program.  It would be very difficult to dig yourself out of that hole.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Creative Commons image courtesy of Photos8.com

Is it Time to Change the Equity Compensation Paradigm?

Even with the explosion in performance-based equity, most equity compensation plans look very much like they did almost twenty years ago. Stock options, restricted stock unit and employee stock purchase plans would be familiar to a time-traveler from 1995. The biggest differences are in the size of the payouts and that many participants receive equity as an addition to base and bonus pay, instead of as a replacement for some of it. The similarities now and then are almost too numerous to list.

For the sake of a theme let’s talk about private companies.

Recently, many investors, executives and employees at privately owned companies have started thoughtfully questioning the reasons behind plan design and features, process and communication. These questions are less focused on traditional public company issues of skyrocketing CEO pay and governance issue and more aimed at how to create programs that fit the needs and patterns of the current economy as they relate to smaller companies.

Let’s start with vesting. Why does almost every plan offer 3 years vesting on full-value awards (restricted stock RSUs, Phantom Stock) and 4-5 years for appreciation-only awards (stock options, SARs, etc.)? There are two basic answers to this question.

1)     Legacy. When stock options plans were first solidified in the 1990s it was common for an exit event to occur in 4-5 years. Everyone followed the leader and an innovative idea became a dictum.
Restricted regained popularity after the Dotcom bust. The first few of these newer plans to make the headlines had three year vesting (AT&T, Microsoft). Once again an idea that had been focused on the needs of a moment became a kind of commandment.

2)     Practicality. Most companies find it hard to see more than three years into the future. Most compensation professionals see three years as being the minimum for “long-term” incentives. Conveniently these mesh well.

You’ll notice that I didn’t mention any scientific evidence behind typical vesting schedules. In most almost two decades working on these plans, I have not seen any convincing research that explained how nearly every company would benefit from nearly identical vesting norms.

More important than the initial questions about vesting tradition is the unspoken question: Why won’t longer or shorter vesting periods work? Vesting should exist to help the company meet specific goals and objectives. Awards with shorter, and much longer, timeframes do work for some companies. Why wouldn’t an eight-year schedule work if it matched the expected period for fruition of the company’s goals?  Why not two years for employees with shorter-term goals? The issues with vesting schedules are that most advisors are stuck in a rut, and most executives have been led to understand that equity is bound by legacy design considerations.

What about the type of instrument? Stock options have been the “go to” resource since the late 1980s. Unfortunately, they can be a bit like heroin. The initial grants are small and have an amazing impact. In order to repeat that feeling grants must get bigger and more expensive. Participants become more dependent on them and companies lose sight of some of the critical reasons they started using them in the first place. Once addicted, it becomes difficult to wean people off of stock options.

We have also heard a lot about the growth in restricted stock shares and units, but these vehicles are seldom used beyond founders in most start-ups. After the first few people, they tend get put on the back burner until the stock is publicly traded and the price is subject to the whims of the public market (consider them a form of methadone). Stock Purchase plans are difficult to do in private companies, but there are still valid reasons to consider them. We seldom hear much about the other forms of equity compensation, or the alternatives to traditional equity.

Even if we stick with the traditional big three, why haven’t these programs evolved with the changes in the markets, types of investors, company lifecycles and more? In 1990, when most of the current program designs were locked-down phones were still attached to a wall and there was no such thing as email. We live in a smart-phone world while using tools from a time when the Internet or calling someone from your car was still a concept bordering on science fiction. We can do better and I hope to spur a discussion here at the Compensation Café on what we can change to move these plans forward.

 What do you think needs to be fixed about equity compensation?

This article is the start of a discussion I hope will expand through this year and beyond. Look for future articles on this topic as we explore the possibilities of evolving compensation to meet the needs of the 21^st century.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay

Bonuses Good. Clawbacks (Sometimes) Better. Design Checks & Balances Best of All!

"Any organization that invests more time and thought into designing performance bonuses than considering clawbacks is guilty of bad behavioral economics and even worse management."

So says MIT Sloan School Research fellow Michael Schrage in his HBR blog post Bonuses Are Good, But Clawbacks Make Them Better.  He rants about "pay-for-performance people", their over-reliance on incentive scheme design (there's that word again) and their under-reliance on clawbacks.  He calls our attention to what he sees as "a fundamental asymmetry" in the presence of bonuses and the absence of clawbacks.

Not sure I agree.

I do concur that clawbacks can be an important consideration where enormous amounts of money are on the line, and for high profile, high leverage positions and situations.  They have been, of course, featured prominently in Sarbanes-Oxley and now in the Dodd-Frank regulations, primarily as a means of mitigating excessive and inappropriate executive compensation awards.  I get concerned, however, when someone pushes hard for clawbacks for rank and file employees like software developers and salespeople, as Schrage does here.

Did the software design team get a bonus for delivering code early and under budget, only to have it be revealed a few months later that there were quality issues?  A salesperson received a large bonus for closing a deal, which then turned out to deliver little or no margin to the company?  Situations like this are typically the result of hastily crafted, poorly considered plan designs - with no checks and balances in place.

Checks and balances are imperative in variable pay design.  Any incentive plan which delivers cash for beating deadlines and budgets had better include the appropriate countervailing elements that consider things like quality -- or safety.  This is simply common sense.  Your salespeople are in a position to craft agreements that heavily influence profit margins and you are paying them based on top line revenues alone?  Sorry, but that is dumb, dumb, dumb. 

Putting employee compensation at the mercy of clawback mechanisms because you can't be bothered to design incentive plans with appropriate checks and balances?  That, my friends, is bad management.

Bonuses - when thoughtfully conceived and carefully designed - ARE good.  Clawbacks have their place, but not as your default solution for all variable pay efforts; they are a poor and potentially destructive substitute for well crafted plans.

Checks and balances in all reward efforts?  Best of all!

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares.

Image courtesy of time.com

Where in the World is Carmen San Diego’s Equity Compensation?

Some of you may remember the video game and game show “Where in the World is Carmen San Diego” (WITWICS.) It was very popular more than a decade ago. The goal of the game was to find the villain, Carmen San Diego, based solely on key facts about different locations around the world. The players had to know the specific country differences that made it possible to identify each unique location and capture the Carmen.

Compensation around the world is as unique in size, design and structure as were the clues to WITWICS. Unfortunately, when looking at most companies’ equity compensation design and awards, it is often impossible to distinguish which continent the participant is on, much less the specific country or region. Plans that don’t include regional differences can result in programs that aren’t effective anywhere.

As compensation professionals, we pride ourselves in the amount of survey data we use. We spend a lot of time and money obtaining and analyzing base pay and STI data that is specific to position and location. We work tirelessly to ensure that our compensation is competitive for those we want to hire, motivate and keep while still fitting within our compensation philosophy. Unfortunately, we often skip this process with equity compensation, especially when it comes to global awards.

This has been a consistent issue since the explosion of global equity plans more than 15 years ago. An engineer in County X, in State Y in the United States makes $90,000, plus a potential bonus of 20%. The company also offers 2,500 stock option shares. The same company pays a similar level engineer in another country base pay of $32,000, plus a potential bonus of 20%. Inexplicably this engineer also gets 2,500 stock options shares.  People have explained this by claiming that there is “too little data” or consistency allows for “easier movement” if the engineer in question has to be moved to a US location. The reality is that, for nearly every company, this is just bad policy.

I admit it. Variable compensation is hard. Global equity is even harder. It’s variable compensation to the fourth power!

1^st  You have the variable nature of equity itself. (Different instruments, available shares and more.)

2^nd Then you have the variability of the current stock price.

3^rd Add to that the variability of currency exchange rates.

4^th Add the volatile changes in unpredictable future stock prices.

Global equity also requires an understanding of constantly changing securities laws, income and tax provisions, expatriate considerations and other factors. Many companies look at the swirl of data and regulations, throw their hands up and beg for mercy.  A minority put a team of people on the project and work to create a perfect solution. The first approach works occasionally and randomly. The second approach works more frequently, but provides no guarantees.

Just like the competitors in the game WITWICS, the best way to determine how to find the right solution for each area is to focus on those factors that make each location unique. Some locations have already broadly adopted, and have a basic understanding of, equity compensation. These locations often have accessible survey data that is used by your international competitors to determine grant sizes. Other locations still see equity as a novelty. Small amounts may work as an avenue to begin their education. Still other areas do not value equity much at all. No matter what your philosophy is, a better strategy may be to offer a different form of compensation. Lastly, people in some regions are simply not paid enough for equity compensation to work well at all. If you decide to give people a nominal grant of 2% of their annual pay and your stock is trading at $200, you may have problems with someone who makes less than $20,000. Imagine giving that person 2 shares that vest over 4 years. Even the best communication can’t make sense of that!

Craft the plan to meet your people’s needs and locations. Don’t force your people to meet the needs of a tidy little plan and philosophy just to make your own life easier. Remember that every location is as unique as the one where your office is located. Every group of people have a set of desires and drivers as targeted as those sitting in the building around you. If you structure your plan to meet your locations you may find that it works as you had hoped. Otherwise expect surprises (and not the pleasant type.)

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Retention v. Engagement: Stay or Play?

Imagine you're in a management meeting where the main topic is how to attract and retain the best people.  Someone expresses frustration with not being able to reward top performers with cash and the conversation segues into topics like engagement and non-monetary rewards. 

That’s a great conversation for managers to have but it’s important not to confuse retention policies with engagement policies.  Although there’s overlap between how you approach engagement and retention - after all, engagement is the best way to retain people as long as you don’t grossly underpay - the target audience is a bit different. 

Let’s start with engagement: Ideally you want to engage everyone in your company.  If you can’t engage everyone, focus on the people who have the most impact on customer experience and the highest performance variation, as I wrote about in a recent post Maximizing Your Rewards ROI.  That’s not the same as focusing on top performers, which is the more common approach.

Engagement creates that wonderful team dynamic that leads to outrageous customer experience and improved performance, with low turnover as an added bonus.  Typically, you engage people with something other than money, such as appreciation or increased responsibility, but money may also play a motivational role.

Consider a typical sales clerk at a jeans store.  A neutrally engaged clerk shows up for work, responds to inquiries with a baseline of helpfulness and rings people up.  An engaged clerk makes people feel welcome and proactively offers sincere - and truthful - advice on the most flattering jeans styles.  This is a perfect example of high impact to customer experience combined with high performance variation, which is exactly where you want to focus your engagement efforts.  It's also a good place to channel scarce rewards, since the clerk will be more passionate about moving jeans out of the store for a percentage of the sale.

In other words, your strategy toward the sales clerk should be focused on engagement, which will positively impact retention as well.

Now let’s look at airline pilots, who have a built-in incentive to perform well, independent of things like salary, appreciation and career opportunities.  You don’t want to lose your best pilots to a competitor, but you also don’t get much value out of trying to ‘engage’ your pilots.  A pilot’s job is to deliver people to wherever it says on the ticket.  To this end, they’ve had thousands of hours of training and flight time, so we don't expect wild variation in performance whether they feel engaged at work or not.  If they don't meet a baseline level of performance they won't be pilots any more, plain and simple.

In the case of pilots, your primary goal is to retain rather than engage.  It's not that you don't want engaged pilots but the business driver is subtly different.

Here's your checklist for retention policies:

• Performance is consistent
• Direct impact on customer experience is low
• A high degree of training and/or experience is required to do the job

For engagement policies, the opposite is true:

• Performance varies from person to person
• Direct impact on customer experience is high

In other words, an engaging culture confers all sorts of benefits but if you target workforce segments with tailored rewards think carefully about your audience and what your goal is - are you rewarding people to motivate them or to retain them?  It makes a difference.

In conclusion, here’s a little poem I wrote to explain the difference between retention and engagement:

Stay or Play?
Retention gets people to stay.
Engagement turns work into play.

(Don't worry, I won’t quit my day job.)

Picture courtesy of funny-potato.com.

Laura Schroeder is a global talent specialist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience envisioning, designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing (well, kicking things) and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

Yet Another Reason to Rethink a Bonus Culture

Already this year I’ve written a few posts (here, here and here) on why bonuses as a primary means of recognition reward fail. Now I’ve read some research featured by Dan Pink, in which he recounts experiments done with two groups. While taking a simple survey, one group was given a visual “cue” of seashells. The other was given a visual cue of money. The result:

“Liu, Smeesters, and Vohs say that money cues can operate as threats and “produce contrarian reactions that are the opposite of the source’s intent.” Other research has shown that being reminded of money can make people more single-minded and more apt to work harder — but also less social, less cooperative, and less likely to help others.

“It’s a bit odd, they explain. ‘Money has bigger effects on people’s thoughts, feelings, and behavior than simply what it can do as an exchange medium or store of value . . . Mere reminders of it are enough to drastically change people’s preferences for work, play, and interpersonal relationships.’

“So the next time you try to raise the issue of moolah in an effort to persuade a prospect or an employee, think twice. Making it all about the coin can sometimes get you the opposite of what you want.”

Single minded and harder working are, indeed, good results – but is it worth the trade-off of employees becoming less likely to help others?

What should you do instead? Keep in mind the research showing that hearing a simple “thank you” made the recipient 100% more likely to help again in the future.

“Thank you” vs. bonus. More willing to help vs. more selfish.

The choice seems easy to me.  But if you need more convincing, check out this video of real-estate mobul Barbara Corcoran, founder of the Corcoran Group and personality on ABC's Shark Tank. Corcoran speaks to recognition motivating better than money by driving people to think differently and bulding people up again and again.

Pay particular attention to the 04:22 mark where Corcoran says:

"Recognition will buy you time. Not phony recognition - 'Oh, you’re amazing,' but real recognition - 'I want to tell you what a great job you did.' Private recognition, not public. Whatever you can do to give people recognition for their uniqueness and success, people will marry you forever."

So if you don't use money to motivate, what should you do instead? Forbes offers this list of 8 ways to motivate without money.

Do you rely on cash bonuses as your primary means of recognition in your organization? Are you willing to trade willingness to help for selfishness?

As Globoforce’s Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

Don’t Tell Me I’m Great If I’m Not!

I have both friends and clients who have been struck by an unfortunate dilemma. I have a couple of friends who have been told one thing for months, and perhaps years, only to find out that the truth they knew wasn’t the “real” truth. I have clients who need to realign pay for people who have been told they were top performers when, in fact, they are less than adequate. In both cases it seems more like senior managers were trying to be nice, rather than sneaky.

Why have confrontation when you can have everyone like you? It’s easier to be nice to everyone. Many managers have made this their approach to leading their staff. Rather than point out flaws, they point out only the positives. Rather than prepare their staff for bumpy water in the future, they keep things on the bright side right up to the moment the boat hits the dangerous rapids. The discussion of a potential demotion, cut in pay or job-ending decision never seems to make it onto the agenda.

Employees want to be led, and generally want the truth. I also think managers generally want to tell the truth, but seldom have the skills to do so delicately. While these managers do a disservice to employees by not laying out a realistic path, those of us in the compensation community do even worse by not providing them with the tools, words and examples that will allow them to discuss both the good and bad.

We can’t expect great employees who have been promoted to be great managers to be able to talk about pay issues with any amount of expertise. We also can’t expect that they will always do this task well, even if they have been trained. We need to make it clear what needs to be said to underperformers and check back to make sure it has been communicated.

This is not about avoiding lawsuits or angry ex-employees. This is about not being jerks in the eyes of those we need to keep working hard. Once the trust on performance has eroded in a single example, you risk the chance of other employees questioning their value to the company. Rebuilding trust is far more difficult than maintaining it. Like a swimming pool, it is far easier to keep it full than it is to fill it up.

So look at what you've asked managers to communicate. Then ask yourself if you have provided them the skillset to do so with a complete level of truth. It is not only our job to make sure that pay is properly designed and set, it is also our responsibility to ensure that the discussions around pay reflect the sometimes harsh reality of underperformance.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” and “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Should We Define Superior Performance?

I think most of us agree on the importance of setting performance goals and clearly communicating performance expectations to employees.  Without this, you're left with something like management by mental telepathy.

But here's a question that has dogged me for some time:  Should managers, as part of the setting of performance expectations, give employees information on what they must do in order for their performance to be considered "superior"?  What it would look like to "far exceed expectations"?  Or is it better, even necessary, that we fall back to the Justice Potter Stewart position - that excellence is hard to define but we'll know it when we see it?

I hear more arguments against than in favor of pre-defining superior performance.  That it would give too much - even too specific - direction to workers.  That it boxes employees in and limits the possibilities of what they might accomplish.  In a world as fast-moving and uncertain as ours, these are compelling points.  Yet I'm left with the nagging sense that we're letting ourselves off the hook too easily here.

And here's another angle to consider.  In my admittedly unscientific observations, I am left with the impression that compensation professionals favor predefining superior performance and that leadership/OD/learning professionals typically fall on the side of leaving superior performance undefined. 

Are these sweeping generalizations on target?  If they are - why would it be so?  Is it that we who practice in the rewards field feel tend to be too black and white, too linear in our perspectives and preferences?  Or, like me, have too many of us had conversations with motivated employees who want very much to do what it takes to excel (and to earn the rewards associated with excellence), but who are frustrated by a boss who refuses to provide concrete suggestions - or even hints - of what they can do to better their contribution to the organization's success.  For an employees in these shoes, the response of "I can't tell you but I'll know it when I see it" can feel like a big fat cop-out. 

Is it?

Where do you come down on this question?  I'd love to hear the thoughts of those both in and outside of the compensation field.

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares.

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