Compensation Cafe

What Does Career Mean Where You Work?

  Employee development. Career development. Career advancement. Employees have told us they are all for every one of them -- both to get them in the door of your company and to encourage them to stay. HR has distinct definitions for each of these terms, even though we often use them interchangeably. But what do employees mean when they talk about career opportunity?

If your compensation work addresses career issues, it would be worthwhile finding out. Employees can mean very different things when they talk about career opportunities, depending on their area of specialty and vision of a career. Preferences often break down by age group as well.

Career ladders are Compensation's go-to solution for techies and finance specialists. It is traditional in those fields to know what your next career step will be and the typical time lapse until your next promotion. In some organizations with an up-or-out culture, the career ladder helps you understand whether your job prospects are running out of steam, too.

Employees who have chosen and prepared for a specialty can conjure up a clear picture of how to navigate forward, and expect their company to meet their expectations with some transparency. But we've also been hearing a different story from new hires who have recently left school and are searching for a niche in the business world. Career ladders might help them see what the future could offer, but they are often unsure that it's the future they've been hoping for. It may be a poor employee development investment to build these employees' job skills for the next rung on the ladder, if they actually want to continue working for your company but in a different capacity.

Instead of climbing a ladder, what many of these employees are looking for is job mobility. By learning how they contribute best and finding areas of the business that are intriguing, they want to grow in value to your company. No straight lines for them, which means they need your help even more than the career ladder folks. They (and you) need to crack the code to identify the skills and knowledge that are transferable from one of your job families, job functions or divisions to another.

Here's an example. In some companies, savvy entry-level customer service reps could parlay their knowledge and experience into jobs in Inventory, Sales, Marketing, Training and so on. Can you help employees navigate these types of side trips? Do you have programs, or at least job descriptions that speak this type of career language? For many employees, choices like these will end up turning into a career. At the very least, cross-functional experiences increase the employees' value to your organization.

Think strategically about the roles and talent your company needs to succeed, ask employees what kind of opportunities they are looking for and decide whether you are actually spending the money and taking time to provide the "dynamic career opportunities" touted on your career website.

Wondering how to get your boss' attention in 2016? You can't go wrong with a copy of the popular ebook, Everything You Do (in Compensation) Is Communication @ www.everythingiscommunication.com. Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create this DIY guide to compensation leadership. Margaret is founder and Principal of re:Think Consulting. She brings deep expertise in compensation, communications and leadership to the CEO Pay Ratio discussions at the Café. Before founding re:Think Consulting, Margaret was a Principal at Towers Watson.

Will Keeping SCORE Help You Keep Top Employees?

An interesting article in Huffington Post caught my eye this week. How do you measure impact of efforts to improve employee satisfaction, engagement and retention? Keep SCORE. According to the article, SCORE stands for the primary employee concerns in the engagement and employment contract: Stability, Compensation, Opportunity, Responsibility, Environment.

The article author contends that far more emphasis should be assigned to the O-R-E factors than to the S-C factors because “great employees” who are “seasoned team members” care far more about Opportunity, Responsibility, and Environment than they do about Stability and Compensation, which are more the concern of “recent grads just trying to pay the rent and get by.”

I understand the author’s point, but I don’t think we can so easily discount the importance of Stability and Compensation to high-performing and high-potential employees. In Maslow terminology, we wouldn’t discount the importance of safety and security factors just because we achieved a level of self-actualization. It’s a continuum constantly interweaving back in on itself, not a linear progression.

I can see the argument that stability and compensation are particularly important to those new to the workforce, but the need for employees to believe they are fairly compensated for the work they do does not diminish throughout a career. Since in this author’s structure, recognition and incentives are included in compensation, this is particularly true. As an executive friend of mine once told me, “I’ve never been promoted to a level where I didn’t want to hear ‘thank you’ for my efforts to help others.”

I've observed the reverse from the author’s perspective for the need for stability. Trends seem to show that those who are early in their career tend to job hop more for several reasons – to more rapidly advance their careers, expand their experience horizons, increase their remuneration class more quickly, etc. Stability seems to become more of an important factor as other life needs increase, such as balancing the needs of both children and aging parents for those workers who find themselves in the “sandwich generation.”

Regardless, the point is we all need a good SCORE, but the primacy of the various elements of the SCORE likely change on a highly individualized level. Yes, the factor of “Environment” (defined by the author as “Do I like my peers? Do I feel good working for this company?”) can be important. But it’s certainly not more important to great employees vs those who are more average in performance. Indeed, work cultures where “individual success at all costs” seems to be more the norm also attract very good employees with a different priority for their own work enjoyment.

The take-away for me is to focus more on creating SCOREcards that serve all employees, allowing for fluctuations in line with individual requirements while balancing the needs of all. As leaders of people, we are responsible for truly knowing our employees and helping them achieve their best work in order to be fulfilled themselves as well as contribute to achieving the company’s goals.

How would you rank the elements of SCORE for importance for yourself? How might that differ from how your own manager or your company leadership might perceive the importance of each factor?

As Globoforce’s Vice President of Client Strategy and 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. He is the co-author of "The Power of Thanks" and 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.

HELP! Was I Just Arrested or Incentivized?

We all wish we were better at communicating. We create presentations (decks) and plan summaries (SPDs). We carefully choose our words and have our colleagues review things before sending them. Our efforts need to be understood by people with wide ranges of experiences, education and levels of interest. But what if our best efforts were making things worse?

Fill in the blank from the selections below:

Today I was _______ for my collaboration in a scheme.

1. Incentivized
2. Arrested
3. Confused

The correct answer, in our industry, is A. In the United States the word “scheme” generally has negative connotation. In Europe it is a common used word to describe an incentive plan. The word plan has less of a link to incentives and more association with architecture or a crime.

In an attempt to be inclusive (“what if the person isn't an employee?”) many of us prefer to use the word participant instead of employee. We want individuals to know that being a participant in a plan is how we bring them all together. Unfortunately, participant quickly translates to outsider in many countries.

Several years ago I wrote an article that discussed the word “compensation.” The most basic term that describes what we do, what people get and why they should be happy, doesn’t translate well. In our efforts to create a language around our confusing and changing industry we have coined terms, found new uses for old ones and sometimes simply invented words to suit our needs. We may not be helping ourselves with these efforts. Our presentations are cleaner and prettier than ever. You know the rules: 3 bullets or less per slide, less words per bullet is better, cool pictures communicate better than a bunch of words. This doesn't leave much room to explain complex terms.

You need a glossary. Many of us no longer include glossaries at the beginning of a presentation. But, your glossary shouldn't be more than five or six words. If you have a laundry list (another mistranslated phrase) of terms you may need to readdress the language. Or, you may need a few smaller glossaries, each beginning the section where those terms are used for the first time.

Think about the short list of words below and how they can be used in other, often unsavory, ways. Then ask yourself if the people who truly need to understand your hard work can possibly be expected to do so.

Tranche

Spread

Exercise

Release

Option

Statutory

Now carefully add your own questionable industry words in the comment section.

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture. Do you want to know more about, Performance-Based Equity Compensation? Dan also cowrote “Everything You Do in COMPENSATION IS COMMUNICATION”, with Comp Café writers, Ann Bares and Margaret O’Hanlon. And believe it or not, he has co-authored “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives.” Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.

I'll Have Meat And Potatoes, Please

Once upon a time I knew a fellow who believed in pursuing everything cutting edge with his career, which happened to be as a Human Resources generalist. It seemed that he read copious articles, attended numerous conferences, webinars and local association meetings, always with the intent to keep abreast of the latest techniques, new thinking and buzz phrases.

I've been on the article review committee for Workspan, the quarterly WorkatWorld magazine, so I've seen the multiplicity of "new idea" articles that hit the presses like an assembly line that never stops. It's a target rich environment.

This fellow was a modern day Renaissance Man, one who continually sought to introduce new programs, install new procedures, develop new behavioral processes, and in general tried to use his organization as a petrie dish for the latest and greatest concepts coming out from SHRM and WorldatWork.

However, there were only ~100 employees in his organization. And his management wasn't all that interested in being at the so-called forefront of HR thinking. They couldn't understand the call for constant change.

As a result this fellow didn't last long at that organization. He felt that they didn't appreciate the value of what he called innovative thinking. They felt that he didn't understand their organization.

Do You Really Want To Experiment in HR?

For some, this question deserves a resounding YES. Proponents will tell you that continuous improvement should be the hallmark of every practitioner's annual plan. But "improvement" can be a contentious and subjective term - and results should be more measurable than simply offering up "different."

The intent should be, "we have challenges here and believe that one the latest ideas in HR will help us." Because sometimes, just sometimes the reason new ideas are chased after like it's the Holy Grail is that getting experience with such new ideas and programs is good for the practitioner. Good for their career.

Ahhh, the hidden agenda. Think about it. Tell me it isn't so.

I believe that there's value in asking yourself the "why?" question before putting forth any recommendation, be it from the old school or from avant garde thinking. Hopefully your answer puts the good of the organization at the forefront.

Walk Before You Try To Run

In my view an organization should get the basics right first (programs, policies, procedures), before they charge off into the (possibly) unknown. Before they realize the unintended consequences. There's a reason some bright spark coined the phrase, "Keep it simple, stupid," and that's because the programmatic and behavioral basics are not only the foundation of your HR programs, but on a daily basis being straightforward is easier to understand, to communicate, to implement and to get managers behind you.

Under normal circumstances your management is going to be hesitant to try new things without first hearing a strong argument advocating that brave new path. Sometimes the phrase "If it's not broke don't fix it" isn't a laugh line, but a correct strategy.

Now I'll admit that the tried and true approach is not sexy, it's not exciting, and will likely not get you a name for yourself or a nice new line on your resume. But often times the basics are the best approach, at least for the time being, for your organization.

So when management prefers meat and potatoes instead of haute cuisine, have a care that what you're recommending makes business sense (and common sense) for the organization . First and foremost.

Round peg, square hole and all that.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a clowder of cats.

Creative Commons image,"Beef Tenderloin with potatoes and rattatoille," by Paul Kemper

Pay Oppression and Other Toxic Reward Practices

When adding a new maxim to my ever-expanding list of Brennan’s Laws, I rediscovered this one:  #13 under Fair/Competitive Pay. 

Blocking senior workers from making deeper range penetration makes it probable that new people with impressive credentials but no proof of output capability will be hired at salaries well above senior incumbents with well-established abilities.  That’s so much worse than pay compression that it might be called “pay oppression”!

That concept seems worthy of expansion.

Granted, slowing the compounding salary growth of veteran workers seems to be more the exception than the rule.  Most organizations (especially large bureaucratic monopolies with long traditions of inertia) tend to strongly support near-infinite pay progression opportunities for senior staff.  Raising grade ranges despite flat market movement and granting cash payments in lieu of base increases are always popular topics in compensation forums.  The bulk of payroll growth generally tends to be expended on employees holding many years of service in the enterprise.  Those long-timers with substantial job seniority usually earn the most.  Sudden priority needs for new talent to be hired into comparable peer positions who demand much higher starting rates than veteran incumbents can come as a shock. 

Maybe that’s why breaking with a comfortable pattern frequently results in bizarre behaviors.  Like freezing pay for those earning above average … or beyond the range midpoint, pay norm or classification control point.  Failing to periodically adjust the relative lead highly experienced workers hold over their less seasoned job peers can also lead to serious problems.  That is a particular concern today when States ratchet minimum wages higher than the Federal requirement.  Even the national Fair Labor Standards Act faces revisions that will affect internal equity considerations.  New challenges seem to come fast and furiously.

Another problem could come from overestimating the ability of pay that was quite generous some years ago to remain as sticky today as it was then.  Misallocating scarce money remains a constant threat.  Continuing to tie unique jobs to low-paid internal benchmark matches when the incumbents can command  premium rates for the same services elsewhere is also hazardous.  There are many mistakes about compensation that are easy to make.

For example, assuming that keeping a key employee secure during a period of severe headcount reductions will make up for freezing their pay for the next few years could be dangerous.  A need, once satisfied, is no longer a motivator.  Gratitude doesn't last forever.  Once the fear of displacement has been overcome, people again expect pay increases and resent being taken for granted.  It gets even worse if they are required to train underlings who continue to get increases while they are expected to remain content without similar raises. 

Similar “crimes” against equitable justice might be found in many compensation systems.  There are a million reward schemes called “unfair” because they allow some an advantageous opportunity not offered to everyone.   Quite a few offensive pay practices were published some years ago by H. R. Screwtape in the classic three part series, “Rewards that Don’t”.  Posted on the WorldatWork total reward professional society’s website for years, it was a sarcastic primer for the design and implementation of dysfunctional compensation methods still found at many employers today. 

What other examples of toxic pay practices and perverse incentives drive you crazy?  Bet the rain falls on others, too.  Share your horror stories.  Remain anonymous, if you wish; or send your submission to me privately so I can post it safely. 

While such venting may not improve the bad situations, catharsis always makes you feel better.  Besides, you may see some examples that give you better perspective about what is REALLY bad. 

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 Economic Research Institute 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 "Hand Hold Hard Shiny Metal Chain Isolated On White Background" courtesy of khunaspix at FreeDigitalPhotos.net

It's 2016 and I Have an Urge -- Don't You?

I have an urge to write about what I know now, in 2016, that I wish I had known back then (you know, in the last century). I think it's because it's my first day back on the job in the new year. Putting up the new calendar for the next twelve months, I always find myself wondering what else is going to be new this year.

If you find yourself in the early part of your career as 2016 begins, here are a few suggestions that can help you, I bet. And if you're long past the early days of your career, why not add your own suggestions?

If senior practitioners look for help, give it.  Whether they need help in Compensation work or just in general, they will appreciate your interest. You probably learn a lot, too, as long as you make a point of it. Even if they are asking you to populate a database, be curious. What are on the forms or tables you're using for input and why. How will the data be used? Why is it a priority? Observe the management style, too. What can you learn there? Would you like to work for this person in the future?

If no senior practitioner asks for help, offer it anyway. And I don't mean in an email. Ask for a minute to talk over their  workload and identify areas where you think you can contribute. Listen carefully to the response and look for ways to counter their concerns (that you don't know what you're doing). You may not be ready to run a project but you can support project managers, taking maintenance tasks off their hands. Favors are often remembered and returned, and your own developing skills are bound to be recognized over time.

If you're thinking about getting a certification, start the courses. You'll always have a good reason not to, but odds are you'll do a better job because of what you've learned. And since most of the WorldatWork courses can now be taken online, sign up for tuition reimbursement, grab yourself a tablet and get going. Ignoring that tuition benefit at your job is like ignoring the 401k match.

You'll notice that most Compensation practitioners who are working for the big firms do not have certifications. That's because of the depth of training they receive on the job. Even a new consulting Associate can work with as many as a dozen companies in just as many industries in the space of a year. Each set of client needs is different, and all the consultants' work is reviewed -- often more than once. After a few years of that, you've fixed a lot of bad habits, helped clients address most compensation basics and worked through a variety of strategic challenges. A certification will not give non-consulting practitioners the same range of experience, but you will have achieved a thorough familiarity with the industry standards.

If you don't know what's it's like to work at your major competitor, find out. Interview new hires that come from those companies. Don't limit the discussion to their compensation. Find out what they thought about career programs, performance management, manager skills, their HR department. And take some field trips. Sure, your competitors won't let you in the door, but local companies outside of your industry are bound to be open to a get together to share what's going on. Become the resource in your department who knows what's going on on the outside. And when it comes to competitor insights, make sure to keep your data fresh.

Wondering how to get your boss' attention in 2016? You can't go wrong with a copy of the popular ebook, Everything You Do (in Compensation) Is Communication @ www.everythingiscommunication.com. Margaret O'Hanlon, CCP collaborated with Ann Bares and Dan Walter to create this DIY guide to compensation leadership. Margaret is founder and Principal of re:Think Consulting. She brings deep expertise in compensation, communications and leadership to the CEO Pay Ratio discussions at the Café. Before founding re:Think Consulting, Margaret was a Principal at Towers Watson. 

Why We Should All be Pressing Pause

If you are an avid follower of the HR (or probably any other) blogosphere this time of year, you are no doubt weary of the “resolutions” posts, the “anti-resolutions” posts, and even the “anti-anti-resolutions” posts. Not to fear! This is not any of those types of posts.

But… I do want to talk about why I think there can be immense value in this type of resolution-making activity. We can take a closer look at the benefits and appeal of the process, instead of casting it all off wholesale as a temporary blip in otherwise stubborn habits. It just so happens that New Year’s offers some of the most illustrative examples of the process, if not necessarily the expected results.

The Opportunity to Press Pause

Whether it is the holiday itself or just marking the end of the year, New Year’s resolutions offer a chance for all of us to press pause on the otherwise constant and busy stream of our lives. We can step back and actually think about everything that has happened. The projects we have completed at work, the number of billable hours or sales completed, the relationships we have built with customers, the gains in our professional development, the beginning of the WorkHuman movement. Often the result of such retrospection and reflection is staggering. A year is a very long time in business (more so now than ever).

So you’re probably still asking yourself, what do we gain by looking back?

In addition to some amount of “where have I been,” pauses also offer the opportunity to reflect on “where am I now” and “where do I want to go.” If we think about our professional lives, the interrelationships between these questions is really about creating self-awareness, performance, and opportunity. These are the same principles behind everything from mindfulness to leadership and high-potential development. It turns out most activities that require improvement also require a pause that allow us to establish goals and develop plans.

Pressing Pause More Often

If it is so powerful, why wait for some arbitrary marker? What if we create a habit of pausing, instead of waiting around for the New Year’s holiday or that dreaded semiannual performance review?

This is an inherent value of a culture of social recognition, in helping to create habits out of pressing pause. It allows everyone in the organization to take a pause from overwhelming day-to-day activity and think about performance. But where resolutions are often focused on the self, recognition is focused too on the relationships of those around us. Who has helped us when we really needed it? Who has gone above and beyond their normal role to contribute to the team? Who has excelled at building client relationships?

This helps us to be grateful for those who have helped us develop skills or achieve success, and provides valuable feedback to those same people about how their behavior has had a positive influence on those around them. Recognition allows us to rise above the steady stream of work, to press pause, and take the time to recognize and be recognized. In the end, everyone has the opportunity to become more strategic and values-aligned, paying attention to what really matters.

How are you able to press pause at work? How has the recognition of others helped you to see where your own opportunities for improvement lie?

As Globoforce’s Vice President of Client Strategy and 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. He is the co-author of "The Power of Thanks" and 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.

Incentives Without Teeth

Pay for performance continues to grow as a solution for motivating people in a world of flat compensation. The title of this post probably had you thinking about incentive plans that required real goals to be met before payment was earned. Maybe you thought about one of your programs where people got paid even when performance wasn’t great. While these are common themes in motivational pay, this post is about an entirely different kind of teeth.

As a frequent flyer, I have the joy of flying on several airlines every year. Sometimes they are great, sometimes they are not. In every case I try to consider how pay programs contributed to the success or failure of my voyage. My most recent trip was a great example of failure. On the bright side it helped drive home the fact that we need to remember a second kind of teeth when we create pay programs. These teeth are located on each gear and cog, each task and job.

Like most businesses airlines operate through a series of discrete, but ultimately connected, departments. Just as important as each area doing a great job on its own is the link between that area and the next. Like gears, each department must be surrounded by teeth that mesh with those around it. When teeth are missing, or not in sync, performance suffers. But what if there are no teeth at all?

I am assuming that most of the people at the airline in question were competent. I am also assuming that most have some personal pride in their work. I would even guess that many work strongly as teams. Unfortunately, it seemed as though none of the employees had any real motivation to make sure that their efforts supported, or drove, those of anyone else. In fact, it seemed like many toothless wheels spinning side by side with no link between them.

Success in one area had no impact on the next. Failure in one area was not acknowledged or accommodated by the next. Rather than flying an airline, it felt more like we used a baggage check-in service and then moved to a new company who provided security. We then went to a transportation service that did not know when or where our flight was. While navigating these independent entities, the plane appeared to be staffed by yet another unique company who received no communication that many passengers were stuck in earlier steps. After the plane left without several passengers, we went to a customer service desk that seemed to neither care about the prior issues nor have any reason to provide a workable solution. Each step was staffed by nice people without any real motivation to make those before and after them look good. I am sure most thought they were not part of the problem.

Sadly, I saw only one common connecting factor. There was a single manager who I saw at the check-in desk, and later at the customer service counter, and hours later at one of the gates. This single person seemed to have some type of internal, or external, motivation to make everything work. Of course, she may have been able to fix some of the things some of the time, but having her running all over the place didn’t seem like an effective solution.

Many companies have incentive plans without links between individuals, teams, departments and the company as a whole. I often wonder if they know the teeth are missing. Some seem to believe that having one big gear based only on company success solves the problem. But, each individual and group must still be aligned and linked to that gear in some understandable way. Some have built many small gears based on tasks and processes, but these have little or no link to each other or their success as a whole. Every part must mesh for the whole to be useful.

When you evaluate the success of your incentive plans during this year pay special attention to understanding and documenting how each plan, metric and goal is helping or hindering the success of those around it. Often the neglected teeth of joint interaction are more important than the obvious teeth of big paychecks and promotions.

Dan Walter, CECP, CEP is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture. Do you want to know more about, Performance-Based Equity Compensation? Dan also cowrote “Everything You Do in COMPENSATION IS COMMUNICATION”, with Comp Café writers, Ann Bares and Margaret O’Hanlon. And believe it or not, he has co-authored “The Decision Makers Guide to Equity Compensation”and “Equity Alternatives.” Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation and @SayOnPay.

Cafe Classic: Three Connections to Meaningful Rewards

Editor's Note:  For at least the foreseeable future (and what is that these days ... a few months?), variable pay is here to stay and continues to play an increasingly important role in compensation packages from the factory floor to the executive suite.  The million-dollar question is, of course, how to do financial incentives well -- and in a manner that reinforces the purpose and meaning of work.  This Café Classic, which brings some thoughts to bear on that question, was first published on March 5, 2010 and remains (I believe) just as relevant today.

Too often debates about financial incentives seem to hang on a false choice: either we help people see and embrace the purpose and meaning of their work or we provide them with cash rewards for getting things done.  As if these things are mutually exclusive.

Shouldn't we be doing both? 

Shouldn't we be putting programs and practices in place that make work rewarding both emotionally and financially?  In fact, our research and experience tell us that cash rewards work best when they are paired with efforts to help people understand the meaning and the value of what we are asking them to do. 

To this point, a recent Knowledge@Wharton article (Putting a Face to a Name: The Art of Motivating Employees) featured some of the research Wharton professor Adam Grant has done in the area of motivating workers.  Adams describes a number of studies demonstrating that efforts to emphasize "task significance", the impact that your job has on others - can measurably impact performance and productivity. 

We should already know this, but our efforts to design financial incentives often suggest that we don't. 

Variable pay is becoming an increasingly prominent piece of the pay puzzle for most workers.  This fact ups the ante on how we do incentive compensation.  To make incentives work well, to ensure they deliver on their promise for workers and employers in this environment of growing pay risk, I think there are three essential connections which we must make.

(1) The Meaning Connection.  We all gain from better understanding how our work benefits others, whether those others be external customers or internal peers whose own work and ability to serve customers hinges on our jobs being done well.  Astute leaders and front-line managers will find ways to make this connection for employees - because it is a good end in itself and because creates a strong foundation for our other efforts to influence and reward performance.  In an era of increased pay risk, I think this also creates an important platform for sharing the economic upsides and downside of work.

(2) The Value Creation Connection.  Employees must understand how what they do each day influences the most important business priorities of their employer ... and the key metrics upon which their variable pay rests.  (Hopefully these things are closely and clearly related.)  They need to appreciate their role in creating economic value - the value that allows the organization to survive and thrive.  Yes, this takes work - but if we expect employees to accept more performance risk in their compensation package, they need to be empowered with an understanding of how they can make a real difference.

(3) The Reward Connection.  To buy into and place their faith in an incentive plan - particularly in this new age of increased compensation risk - employees must understand its mechanics.  They must be able to see how moving the needle on the plan measures will translate into an award.  Discretionary awards must be minimized; leaving awards up to managerial discretion puts a question mark where this last connection should be, a situation that will be less and less acceptable in an age of greater pay risk. 

And so, I think influencing employee performance isn't about meaning or rewards, but rather strong connections between meaning and rewards.

You?

Post-script: In the original post, a few commenters asked whether I had read Dan Pink's Drive (Yes. Sigh.) and wondered whether I was simply echoing his thinking (No, please see opening line about false choices...).  I appreciated my friend Paul Hebert's comment in this regard, which I share again here (since, as always, he says what I mean better than I do):

Interestingly - as I read the comments that you are echoing Pink's Drive "stuff" - I read it completely different.

What I hear you saying is that yes - meaning and connection to our work drives performance and that properly designed incentives/recognition can help illuminate that connection.

Drive/Pink took the position that incentives don't work and decrease performance (and I would agree when they are poorly designed and focus solely on outcomes) - but your post highlights that fact that when focused on appropriate behaviors and metrics they can create a more solid connection to the employee's "place in the world" which will reinforce their purpose and provide a way to measure their progress (another huge motivational lever.)

Thanks again Paul!

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force,  and Managing Partner of Altura Consulting Group LLC.  Ann also serves as a member of the Advisory Board of the Compensation & Benefits Review.  She earned her M.B.A. at Northwestern University’s Kellogg School, is a foodie and bookhound in her spare time. Follow her on Twitter at @annbares.

Creative Commons image "Hands Across Time" courtesy of Bill Gracey