When base pay is inadequate, no amount of non-cash total reward elements can fill that gap. Only when employee income is enough to cover basic lifestyle costs will supportive conditions exist for other reinforcements to be valued. Rewards like fringe benefits, perquisites, recognition systems or other non-cash positive consequences are only effective when they supplement decent income levels.
Think of cash as oxygen, the fuel essential for life. With it, we breathe and strive for more… like food, shelter, affection, respect and self-actualization. Those “extras” lose their importance if we begin to struggle for air.
Inadequate compensation undercuts the value expected from budget allocations devoted to such things as premium employee benefits, special services and enhanced working conditions. A starving family gets no food from a wonderful recognition system. Clothing for the children can’t be purchased by a marvelous health care plan. Free parking will not fill the gas tank. Generous vacations and friendly leave policies won’t pay the rent. Granted, those things may be seen as “nice,” but the engagement power of non-monetary reward items hinges on the base pay situation. Money spent on fringe benefits, recognition systems, career development programs and the like will provide the maximum return on the investment only when employees are not actively dissatisfied with their incomes. I venture to suggest that attitude surveys showing a lack of appreciation for non-cash entitlements probably reflect an underlying malaise about pay.
Cash remains a primary core hygiene factor, while other types of positive work consequences must be supplemental. Money is the basic essential piece of “compensation.” Other less vital rewards can satisfy more sophisticated motivations, but those elements lose their reinforcement power when pay is considered inadequate. That principle is quite clear to experienced human resources professionals, but people in other fields can find it confusing. Even senior managers may overestimate the utility of well designed non-cash programs when their subordinates lack confidence in the base wage or annual salary portion of the total reward system.
Employee value propositions are always individual, of course, but general patterns do exist. The moment workers begin to feel underpaid, their appreciation for non-cash rewards fades. At best, those fringe benefits recede into a background position as minimal threshold hygiene elements: more of it will not make them feel better, but any reduction will create resentment. Without enough money to provide basic security, everything else becomes secondary while survival takes priority. Once confidence is restored that a certain acceptable level of income exists, the other motivations that enhance engagement can gain ascendancy.
A two-pronged test must be met before any non-cash programs can succeed. First, adequate pay must be an objective fact; for that, apply standard professional compensation methods. Second, subjective employee opinion must accept that fact; that’s a communication issue.
The specific point at which cash reaches the particular satisfaction level where other “soft” elements begin to be appreciated cannot be precisely defined. But everyone knows a transition point exists, even if it is not one standard value. You can tell when a proper income foundation is absent and you will notice when it has been achieved. Identification of such a magic right-pay number is complicated: it involves both unique local facts and subjective opinions that swirl together, moving in constantly shifting combinations.
I don't know of any cookbook formula to identify some universally appropriate pay satisfaction tipping point where non-cash supplements become useful. Yes, everyone already knows about the past-documented $75,000 “happy” level, but that’s too general to be of practical use. Anyone out there with a quick answer for this universal problem? If so, please share your solution here!
E. James (Jim) Brennan is an independent consultant with extensive total rewards experience, specializing in job evaluation, market pricing and pay budget distribution. After HR corporate jobs in chemical/pharmaceutical manufacturing, he consulted at retail, government, energy, IT, tax-exempt and other industries throughout North America before becoming Senior Associate of pay survey software publisher ERI until 2015. A prolific writer (author of the Performance Management Workbook) and speaker, he gave expert witness testimony in many reasonable executive compensation cases both for and against the Internal Revenue Service. Jim also serves on the Advisory Board of the Compensation and Benefits Review.
Image "Tree Growing from Dollar Bill" courtesy of Sujin Jetkasettakorn at FreeDigitalPhotos.net