Compensation Cafe

One Size Doesn't Fit All

There’s a growing acceptance that one size no longer fits all when it comes to rewards.  This is partly in response to shrunken budgets.  After all, it stands to reason that when the majority of businesses say, ‘We don’t have money for salary increases this year,’ someone is bound to come along and say, ‘No worries, we can show you how to motivate people for less money.’ 

I’m not saying they can’t - my point is that the market has been primed for new ideas by recent economic pressures.

But there's more to tailored rewards than a new fad created by economic hardship.  Various research shows that people are motivated by different things at different times, depending on a variety of personal and demographic factors:

• Single parents may place a higher premium on flexible work time or working from home.
• People focused on their careers may respond best to coaching, training and/or leadership opportunities.
• Someone supporting a large family or paying off school loans may be motivated by extra cash or benefits.
• Employees with less experience may work best in teams with lots of coaching and checkpoints, whereas more experienced people may do their best work autonomously.
• Certain types of rewards may confer more ‘status’ than others in certain parts of the world.

So if you're trying to motivate people and get them focused on the work instead of greener pastures, there’s a lot to be said for tailored rewards.  But there are also a couple of challenges:

Fairness:  Unfortunately, even if Jane gets to work from home twice a week, she may feel still jealous that Mark is getting his MBA subsidized.  And as if we didn’t have enough trouble negotiating rewards with individuals who know their own worth, the government has emerging ideas of its own about what constitutes fairness.  I recommend this post by my Compensation Café colleague Stephanie Thomas for a useful, concise summary of the Paycheck Fairness Act. 

Perceived Value: One reason Jane feels unfairly treated is that an MBA has a higher perceived value than working from home.  The way she sees it, she gets more work done at home, so why isn’t anyone paying for her MBA?  The point here is that you need to have some idea of the approximate value of different types of rewards in order to get an accurate picture of each person’s total rewards package.  This should include both cost to company as well as benefit to employee.

Cost: It’s all very well to help pay for Mark’s MBA in lieu of a salary increase and may in fact increase his motivation and performance while strengthening his feeling of connection to the company.  These are all good things.  But has anyone figured out exactly what that costs and whether any value is gained besides Mark’s gratitude?  For more caffeinated debate on this topic, check out Chuck Csizmar’s post about the value of employee certifications.

Clearly, we can’t just jump onto the tailored rewards bandwagon.  But given that personalized rewards are more motivating than cookie cutter rewards, how can we start moving in that direction?

1. Develop a total rewards philosophy that accommodates choice.  The more choice people have about their rewards, the more meaning and personal value the rewards will have.
2. Don’t just think about money and stuff.  Growth opportunities, flexible work, great leadership, community outreach and resonant core values buy more good will and personal commitment than money.
3. Get better at letting people chart their own course. Wally Bock recently wrote a great post about how people want control over their work life.  Basically, the more opportunities and self-determination you can offer, the better positioned you’ll be to retain and acquire great people. 
4. Work with managers.  Help them cultivate an attitude of trust and flexibility and connect the dots between their management style and company performance.  Brainstorm with them about how to create more opportunities for people in their teams. 
5. Think diverse but be consistent.  You still need to worry about perceived and legal fairness.  Once you figure out the right rewards mix for your company, the next steps are to calculate cost and value, define consistent criteria for allocating rewards and plan your communication strategy.  Same old, same old.

And finally, please keep in mind Derek Irvine’s recent reminder that humiliation is not a reward. 

I also don’t recommend tie pins.

Picture courtesy of GCC. 

Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and is currently pursuing a certificate in Strategic Human Resources Practices at 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 and spending time with friends and family. If you want to read more from Laura, chceck out her talent management blog Working Girl or follow her on Twitter @WorkGal.

Properly Driving Performance Can Pay for Itself 1,000 X or More

Step right up!  I want to offer you an investment where for every $1 contributed  you have the potential of earning $1,000! In fact, each dollar may have the potential of earning a million dollars!

While this seems unlikely, or perhaps even impossible, it is true that money properly invested in driving performance can achieve these results.  What if someone showed you a way for your company to invest $200,000 and drive returns of toward $2 billion? This would be multiplying your investment by more than 10,000 times! While this example stretches the possibility to its limits, it is not a complete fantasy.

Here’s the catch. Today a software “app” can be bought for a few bucks.  A computer can cost less than a thousand dollars.  These prices are driven by high volume sales and can mask the underlying cost of development.  In today’s world of commoditized technology, we sometimes lose sight of the cost/value equation involved in a purchase.

This has become an issue with all types of human resource tools and services. As compensation evolves into an increasingly metric-based, performance-driven structure, we need to reevaluate the resources spent on these programs. In presentations and consulting assignments around the country, I often hear that effective systems and services are “too expensive” and implementation and administration are “too time consuming.”  I seldom hear about the fantastic brainstorming that went to designing a new plan or, more importantly, the incredible results of a plan after it has been properly rolled out and communicated.

As industry professionals, it is essential we shift our paradigm, to focus on both ends of the “smiley-faced curve” that is often referred to in discussions on product delivery. (more on this concept)  This type of curve shows the upfront costs and time put into a product (brainstorming and design), followed by the trough of developmental time and expense (implementation and administration), ending in the steep curve of success and profits (roll-out, communication and eventual payout).

Focusing on the entire smiley-faced curve may help us stay focused on real results over the long haul.  It may also give us a model for “selling” our ideas to senior management and shareholders.  As we gather evidence of success on the right side of the curve it will provide validation for future investments in performance management.

Consider each dollar invested in driving performance as a percentage of the potential payout to the group of individuals receiving compensation for their performance.  Many executive compensation programs can see the value in performance-based payouts for all participants in the tens and even hundreds of millions of dollars. A 1% investment in a million dollars is a mere ten thousand dollars.  If a company has a potential payout of $50 Million for a given program, a $200,000 investment should seem inconsequential.

Let’s look at this as an even bigger picture.  If the same company has a $100 billion dollar market cap and increases its market value by 2%, the $50 Million compensation expense is worth $2 billion to the company! How much is justified in the areas of communicating, managing and administrating the compensation programs that helped drive this success?

Most companies invest surprisingly little in making their performance-based programs perform well. A relatively small investment can result in returns that can be difficult to imagine. Try the above exercise on your company’s compensation programs. A wise mentor often told me, “cost is only an issue in the absent of value”.  Consider whether you have a strong evidence-based argument to increase your investment.  If you do, make your case to management by showing them how you can provide a return on investment that is unlikely to be seen anywhere else.

Pay for performance will be the mantra for the next few years.  Ensure that you are investing what it takes to get the most out of it.

Dan Walter is based in San Francisco, CA and is the President and CEO of Performensation, a firm focused on improving its clients performance and equity compensation programs. He has worked with small start-ups through the Fortune 100 for more than 15 years. In addition to being a frequent speaker in the US and abroad, Dan is on the board of the National Center for Employee Ownership, helps run ShareComp, a virtual conference for the share plan industry and heads Equity Compensation Experts one of the largest free networking groups for equity compensation professionals. Dan loves to share ideas and information. Follow him on LinkedIn or Twitter at @performensation.