When You Can’t Differentiate Based on Compensation, What Do You Do to Stand Out?

Our esteemed Compensation Café editor, Ann Bares, recently conducted a survey on the annual salary merit increase and potential changes afoot (read the results of the survey in Ann’s post on Compensation Force). It seems compensation pros are considering changes, but few are making the leap yet.

But then my highly unscientific poll method of asking colleagues and friends about their experience with or recommendations for the annual compensation increase process (by whatever name you want to call it – merit increase, raise, cost-of-living increase) shows deep dissatisfaction with the status quo. Here’s just one example that’s illustrative of many of the stories I heard.

The husband of a member of my team has been working for the same very large, global organization for the last 30 years. For much of that time, he’s worked with the same group of people who know each other quite well. So when everyone on the team received a 2 percent “merit increase” (as this company does use the classic differentiation scale of 1-5 with higher merit increases supposedly going to those who receive a 5 rating), it wasn’t surprising for people to grouse to each other about not only the low increase but how everyone received exactly the same increase, though performance ratings did vary.

Adding insult to injury, the price for a cup of coffee in the café also went up on the same day, leading to the inevitable result of people complaining their entire merit increase now went straight back to the company to fund the increasing cost of their daily caffeine habit.

Of course, one story does not a trend make; however, multiple sources are showing merit increases no longer align to cost of living increases. It’s clear even companies with the best of intentions for compensation cannot compete for top talent based on pay alone.

A recent survey from CareerBliss proved the point, even in the highly competitive tech industry in Silicon Valley. (Direct content from CareerBliss is available here.) Heidi Golledge, CEO and co-founder of Career Bliss, had this to say about the survey results, in which Intuit employees were found to be the happiest employees in tech:

"CareerBliss also found salary was not a huge factor in determining employee satisfaction. For example, Yahoo, which ranked eighth on our list, has one of the highest average salary listings — $87,000 a year, whereas Intuit’s average salary is $77,000 a year — once again proving money does not necessarily buy happiness at work. When it comes to tech, folks feel happy creating the latest technology and being part of a cool culture with friends at work."

Differentiate on Culture

In today’s workforce, culture is your differentiator. Anyone can copy your compensation plan. Anyone can one-up you on pay to try to draw your best talent away. But your unique culture – how your employees engage with each other, with customers, and with the greater purpose of your organization – can never be copied. Sure, people may self-select out of your culture because it’s not the right fit for them, but that serves to strengthen your culture further.

Where does your organization put retention and recruiting emphasis?  On culture or on pay and benefits? Which do you see as most powerful for differentiation to retain highly sought after employees?

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.

Comments

[Jacque Vilet]

Great article Derek! Pay is becoming less of an "attractor" today with the shift to knowledge workers. The more highly paid the less compensation is a retention factor. Once again, compensation is a dissatisfier.

[E. James (Jim) Brennan]

Very timely post, Derek, because today's W@W Journal Quarterly release has an excellent academic review of
Evidence-Based Lessons About Financial Incentives and Pay Variations
http://apprd02.worldatwork.org/t/1625404/231372/784190/1003/
By Nina Gupta, Ph.D., and Samantha Conroy, Walton College of Business,
University of Arkansas

"Despite contrary claims in popular literature, scientific research shows
that financial incentives and the resulting variations in pay among employees can be powerful sources for improving workplace productivity. The authors review that research and present information on the effective design and implementation of financial incentive plans."

The authors go into detail about the limitations of merit-pay differentiations and how they either support or defeat incentive effectiveness. Conditions for success are clearly stated. Good info there on lots of total reward topics we visit regularly here!

[John A Bushfield]

Culture wins, hands down! Of course, Maslow figured that out half a century ago. Unfortunately, most organizational leaders don't know and/or cannot describe the culture, and often punt by responding with what they desire it to be, or think it is. And that's too bad, because proactive culture awareness and management can create significant competitive advantage.

Compensation is a significant cultural attribute, and can serve to reinforce and sustain cultural norms. Compensation professionals can play a big role in that process, but must practice their craft with a view that encompasses more that the subject itself.