Merit Deserves More than Mere Money

Money is not the only reward available to serve your compensation program.

You can't rely on cash alone, anyway, in these times. During this current long period of relatively flat or tiny incremental salary increases, human resources people have already squeezed as much as possible out of very small discretionary annual increase opportunities. Margaret O'Hanlon wrote eloquently earlier about the current weaknesses in annual pay increase programs.  This is an excellent time to expand your thinking beyond the limited boundaries of payroll budgets.

When pay increase guidelines limit good workers to 3% and outstanding performers to 4%, the difference is hardly worth the lifestyle cost penalties accepted for an extra 1%. Why bother killing yourself for a hardly noticeable pittance delivered long after the performance that earned it and trickled out in each future paycheck? You can get a much bigger boost in earnings by switching jobs.

If other jobs exist with higher salaries, why don't people quit to take those higher-paying positions more often? The answer to that simple question is also the answer to the motivational dilemma. Money is not the only reward prized by workers. Consider some of the other elements of total reward systems that are in greater supply than cash. Some of them are also easier to apply and can win much more appreciation than a few extra dollars disappearing into a bank account.

It does seem impossible to achieve a credible pay for performance (merit) system with lean payroll budgets constrained by low increase authorizations. Merit is not properly recognized by a mere 1% differentiation. Such tiny distinctions are virtually imperceptible, below the level of notice. Let's consider some solutions.

Merit is actually being reflected in retention and movement today. If they are good, you keep them; otherwise they are shed, one way or another, with minimal muss and fuss. If they are outstanding, you prize them and should shower them with (hopefully appropriate) reinforcements. Money is frequently the least available to offer, the most expensive reward element and often the least effective.

The optimal reward is being treated as a treasure rather than as a resource to be exploited. Imaginative total reward options are always possible and sometimes vital. Let's think of some ...

• Valued talent should be encouraged to stick around by frequent positive feedback from the immediate supervisor.
• Can the employee's work schedule be adjusted for maximum ease and convenience? (THEIR ease and convenience, not yours.)
• Could this person's talents, skills and abilities be enhanced for mutual enrichment by another assignment that would please the worker while simultaneously increasing the positive leverage they can supply to organizational output results?
• Are there any training courses, professional societies, sabbatical programs or task-force memberships that would serve both parties well? What new experiences do they seek that will serve their long-term career interest?
• What goods and services does this employee purchase with after-tax income that you could provide while deducting the expense from your taxes?
• It might be informative to ask your tremendously valuable top performers what they would like as a reward. Bet it will not be the same thing from each of them, either.

Rewards can and should be personalized as much as possible, because your workers are all unique human beings with individual hopes and dreams. If compensation people are to succeed in our ambition to effectively manage and administer total reward programs, we should both recognize that fact and act accordingly.

Those who visit this site are probably the most likely to cope effectively with this challenge. What say you?

E. James (Jim) Brennan is an independent compensation advisor with extensive total rewards experience in most industries.  After corporate HR posts and consulting CEO roles, he was Senior Associate of pay surveyor ERI before returning to consulting in 2015. A prolific writer (author of the Performance Management Workbook), speaker and frequent expert witness in reasonable executive compensation court cases, Jim also serves on the Advisory Board of the Compensation and Benefits Review.

"Dreams" by Noah Coffey, courtesy of Creative Commons

Comments

[Karen Kervick]

I for one, value the alternatives (along with the cash), but find there are also few dollars available for the extracurricular activities, such as conferences.

Focusing on non-cash rewards such as flexibility in scheduling, work from home, etc is the cheapest and sometimes most effective tool in the tool box. The flexibility may be difficult for those in HR who feel that a visible presence is needed in the office - even when everyone else is out.... but it has changed, is changing, and probably depends on your business.

[E. James (Jim) Brennan]

As you noted, Karen, change is indeed constant, although hardly ever consistent in its pace or direction. Other alternatives also include promotions (already implied above), recognition and almost anything prized by the performer. Suggest more, folks, please!

[Jay]

Jim, interesting.

I wonder whether base pay is best used to recognize 'merit' differences. Perhaps using base pay to acknowledge increases in the value of acquired skill? Then use variable pay which does not remain a 'gift that keeps on giving' to acknowledge measured differences in performance?

"Promotions" these days seem to be more defined in terms of 'title inflation' and I wonder about their reward value. If you look at the reward field the organizations that 'go where other organizations have not gone' seem to gain advantage with their workforce.

[E. James (Jim) Brennan]

Yes, Jay: today's constrained increase budgets are insufficient to fund base bumps credibly proportional to the value of notably distinguished performance. Tiny increase differences are imperceptible. More important, the infinite compounding effect of any big base pay increase is often unjustified when the great work in one period turns out to be an aberration in future years.

As you suggest, I feel it would be better in these low-budget times to restrict base changes to the limited role of addressing nominal maturity curve progress. Then use variable rewards (including non-cash and lump sum cash bonuses) for extreme positive outliers.

Promotions remain the source of the largest income gains over time, so they will remain prized even when their application is bogus. As a worker's essential role, KSAs and leverage position change, pay should be adjusted accordingly. But that's easier said than done.

Enterprises that lead don't follow trends but set new ones.

[jay]

The advantage of variable pay or 'lump sum awards' is they are reusable dollars and do not plow into fixed cost. The 'smart money' is always on the innovators. In this case the organizations (HR peoples' ideas?) that turn a challenge like the 'small base pay dollar increase budgets' into an advantage. Rather than settling for a 'merit budget' that does little, they fund a lump sum budget. A 2% this year becomes a 4% next year because the dollars are used again and again.

The problem we are facing is the 'minimum wage' laws are going to increase the cost of the least skilled in the workforce. What we need is more money to make 'skill building' valuable. Organizations are already seeking ways to minimize the impact of minimum wage increases by more technology, work redesign, etc. So we need to make it attractive for people to acquire needed skills and probably relocate to where they can find work.

If you define a 'promotion' in terms of moving to work that requires more needed skill then I vote for 'promotions'. But too many 'promotions' are just giving out titles with no value added to the organization.

The most successful organizations do not merely look around for a business, product, or service strategy to copy from others. They invent one that makes sense. Yet in human resources we continue to define 'competitive' improperly. It should mean evaluating where your organization and people need to be to 'win the business battle' and create a solution that gets them there.

When the folks sailed for the 'new world' they did not aim for Italy . . .they did something others did not do . . . headed for America.

[E. James (Jim) Brennan]

Good points, Jay. If Christopher C. had heeded surveys, he would have remained in the middle of a convoy from Genoa to Rome. No one remembers those hesitant followers who thought competition meant lining up behind the leader. You can't get ahead by looking behind.

[Karen Kervick]

If the world is round, do all good ideas lead back to where we started?

Old ideas become new again, perhaps with a fresh spin.

Is healthcare going back to high deductible plans, where you pay for your services and have coverage for catastrophic losses, like the old catastrophic plans, with added savings accounts.

Performance evaluations became so complicated, the leaders of the pack are doing away with the annual evaluation and going with continuous feedback. But they will find that an annual barometer is needed, so there will be road back to some kind of point in time measure. How else will you judge merit or allocate those variable dollars?

[E. James (Jim) Brennan]

Good ideas never disappear, Karen, but they certainly do get recycled; the best are continually rediscovered and rebranded. To identify relative newcomers to our field, simply note their shock at suddenly discovering a basic truth long known by more experienced professionals.

For more on that specific topic, watch for a forthcoming article entitled "Buzzwords and Baby Steps."

[Jimmy K]

From time to time contractors, particularly open shop or non-union contractors, receive letters requesting copies of certified payroll documents relating to public projects on which they have worked. These requests sometimes come on letterhead from some innocuously named organization purporting to be a benevolent protector of workmen. These requests are almost never innocent and without motive.