Money Talks, but Lack of Appreciation Makes People Walk

For many, this time of year brings a two-fold headache – assessing bonus payouts for 2010 and determining potential pay increases in 2011.

This is a fine line to walk. Results of a Monster poll show 41% would be insulted with a low bonus while a WorldatWork study showed some raises are too small to cause employees to put forth additional effort.

What’s a good compensation and benefits specialist to do, especially when budgets are still tight and company leaders aren’t showing signs of losing the purse strings anytime soon, even though companies have experienced seven consecutive quarters of profit growth?

First, the attitude of “insult” over low bonus smacks of a sense of entitlement. A bonus is just that – icing on the cake, not the cake itself. You should not “expect” a bonus as you do a paycheck. When bonuses become expected as a given part of the compensation package, then they should be reclassified as what they truly are – pay.

In fact, the one thing Americans across political lines can seem to agree on is banning big bonuses on Wall Street. Bloomberg reported this week:

“More than 70 percent of Americans say big bonuses should be banned this year at Wall Street firms that took taxpayer bailouts, a Bloomberg National Poll shows. An additional one in six favors slapping a 50 percent tax on bonuses exceeding $400,000. Just 7 percent of U.S. adults say bonuses are an appropriate incentive reflecting Wall Street’s return to financial health.”

The bonus culture in financial institutions is an entity unto itself, but let’s not forget the lure of a large end-of-year bonus led to many poor decisions on Wall Street as well as in companies on Main Street.

Second, in terms of pay increases, merit pay structures that have become common in the last 30 years have resulted in employees seeing the amount of their increase as the best testament to the value the company sees in their contributions.

While this may be true to some extent, if the only measure an employee has of their worth is in the annual pay increase (and accompanying annual performance review), we’ve given employees precious little insight into how and how much their efforts have contributed to project/team/company success.

The solution to ending entitlement – in bonus and pay raise expectations – is to appreciate employees and their efforts throughout the year in non-monetary ways. Consistent, appropriate and frequent recognition encourages employees to perform at a higher level year-round. By giving recognition soon after an action deserving of recognition, you far better associate that behavior with praise in the employee’s mind. Waiting a year to tell someone “good job” does little to encourage repetition of desired behaviors.

Consider, too, that 17% of employees cite lack of recognition as a top five reason to quit.  Are you willing to let your best employees walk simply for lack of appreciation?

Would you be insulted with a low bonus or small pay increase? Do you or your company rely on annual bonuses or merit pay increases as the primary means of expressing appreciation to employees? Do you have any other sense of how valued you or your contributions are to the organization?

Derek Irvine is Vice President of Client Strategy and Consulting for Globoforce, helping global companies set a higher ambition for global strategic employee recognition by leading workshops, strategy meetings and industry sessions around the world. Along with Globoforce CEO, Eric Mosley, Derek recently authored “Winning with a Culture of Recognition: Recognition Strategies at the World’s Most Admired Companies,” available through Amazon.com. Follow Derek on Twitter at @globoforce.

Comments

[Drew Hawkins]

This post resonates a lot with Paul Hebert's recent post comparing smoking with incentives. The once-a-year type of recognition won't do much to re-enforce and/or modify behaviors. Those non-cash forms of recognition throughout the year definitely takes the burden off of huge cash bonuses at the end of every year

[Derek Irvine, Globoforce]

Appreciate the comparison to Paul, Drew. That's a huge compliment, indeed!

Yes, if the goal is to reinforce or modify *behavior*, once-a-year (or even once-a-quarter) programs simply won't cut it. In the moment, specific, actionable and authentic praise and recognition is the way to go for true behavior change.

[Laura Schroeder]

There are a lot of good points here, Derek. For example, inflated bonuses creating negative incentives on Wall Street. Or the silliness of letting people walk for lack of appreciation. I couldn't agree more about the importance of recognition throughout the year - not just good business but good business etiquette - but I also think the cash needs to be there as well. If you tell someone how great they are every day for a year then fail to provide any sort of monetary reward it starts to sound like lip service - the good news is that if you show appreciation you don't have to try to make up for lack of appreciation with unreasonably inflated cash bonuses. Appreciation isn't a replacement for cash, it's another incentive that satisfies a different need.

[Skip Weisman]

Derek,
Nice article and it comes at a good time for me as I'm working with a new prospective client that is struggling with their compensation packages which, in recent years, has included significant year-end bonuses to senior executives with no real criteria on which they are based. I think we're going to need to restructure that program.

I also agree with Laura's comments regarding on-going positive recognition for achievement throughout the year needing to lead to some type of year-end salary adjustment/bonus, etc.

But, at least it will be based on a valid recognition of true contribution that both parties have agreed on, instead of being seen as arbitrary and capricious or non-existent and the employee is left guessing what they need to do because the feedback isn't specific enough for anyone to effectively judge or be judged.

[Derek Irvine, Globoforce]

Skip, "arbitrary and capricious" -- that's what performance reviews are to far too many employees the world over. Thanks for chiming in with that. It's an important consideration, as well.