Cash or Cachet?

Archimedes was quoted as saying, “Give me a lever and I can move the world.” I am sure that he was probably referring to the world of total rewards and compensation. Properly leveraging total rewards is a delicate act. You must use the right instruments and amounts. An even more difficult aspect is determining the optimal balance point. Often, more depends on perception than actual differentiation.

We’ll start with the obvious. Cash is great. Let’s face it, we could all use more of it and would be happy if someone gave it to us. Unfortunately, every company has a limited amount of cash to spread around.  Even in the best years companies do not have an endless supply of money. In our current era where 3% is considered a good merit increase and broad-based LTI incentives seem to be losing ground, we all need to find better ways to stay competitive in the battle for talent.

You may be able to find more value in non-cash compensation instruments, if you are willing to build their cachet before you start giving them to employees.

Luckily, cachet can be more important than cash. With proper planning and communication you can create a cachet for nearly any compensation or reward element. Without building this critical perception element, it’s difficult to get true value out of any non-cash component of a pay package.

Recognition and reward programs of the kind often discussed by Derek Irvine at this blog, are very useful tools for communicating “social status” at a company. Unfortunately, these instruments cannot always be appropriately sized for higher-paid staff members. And, these programs do not help if there are already issues with keeping your staff at competitive total compensation levels. When common recognition programs won’t work and merit increases no longer catch employees’ attention, what should you do?

Instead of offering differentiated merit increases, I have seen companies offering flatter raises to everyone. They then boost the total compensation of high-performing staff members by granting awards from well-communicated “special” LTI programs. These programs are communicated long in advance of awards being given. The goal is to build a perception of a unique status that is similar to that held by job titles in certain organizations. Unlike inflationary job titles that are hard to take away and can result in more costs that planned (read Chuck Czimar’s great post), special awards are just that…special.

These awards can be given for meeting pre-specified criteria or they might be given based on unplanned discretion or links to other performance factors. The trick is communicating the cachet of the program in advance. It must be clear that the program is for the “above and beyond.”  If the awards are given in equity, they may result in the same, or less, total compensation accounting expense as cash. That expense can be spread across multiple years. In effect, you are giving the same amount, or more, to the employees, but it can cost your company less.

Like anything in the world of compensation these types of programs must be designed, communicated and administered carefully. But, if you need to move the world when nothing else will, they just might provide the lever you need. Cachet, instead of cash, may be the best solution to Archimedes dilemma.

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”, “If I’d Only Know That”, “GEOnomics 2011” and “Equity Alternatives.” 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

Comments

[Dannette Johnson]

Good Article.

[Derek Irvine, Globoforce]

Thanks for the shout-out, Dan. You've set me up perfectly for my post tomorrow.

[DAN WALTER]

Hi Derek,

I look forward to your next post!