Editor's Note: In today's Classic, Jim Brennan reminds us of the role that pay - specifically cash compensation - can and must play in an overall reward program and ultimately the value proposition that you offer employees.
Pay is the foundation upon which you build a solid and inspirational total rewards structure. It is the first stage of the booster rocket that creates sufficient force to reach escape velocity. Like oxygen, a steady income flow allows people to survive as they pursue meaningful lives. Having enough money is essential.
Money is not everything. For example, it has been well known throughout history that cash prizes cannot inspire creativity and everyone knows that poorly designed or morally hazardous incentive systems can distract workers from proper performance: but solid pay is a vital first step. Although all rewards don’t jingle, compensation has to be right up front in the sequence of total rewards elements. Without that vital first step, you get nowhere.
Just as a high-rise building or magnificent cathedral cannot be built on quicksand, a solid compensation foundation is required before those higher level employee value propositions can be activated and met. The space shot launched with a weak first stage will never reach the stars. The diver will drown without oxygen.
Pay is necessary but insufficient by itself. Adequate compensation is the precondition for effective application of higher level aspiration goals. A starving person cannot be effectively motivated by status, recognition or intrinsic rewards. Only after adequate compensation has been received will the performer respond to non-economic inducements.
When employees are paid poorly (loosely defined as below their grade midpoint or Market Reference Point), their attention becomes focused on cash. The better their pay, the less they worry about money and the more they become open to other motivational factors. While a low income leads people to obsess about earnings, salary's "power" to influence behavior drops off once one is well paid.
This reminder is important because the increased current emphasis on non-economic reinforcements can lead to neglect of the foundation element. As long as pay does not fall below the individual minimum threshold hygiene level of satisfaction, one can experiment at will with other methods. Non-monetary factors like intrinsic motivators, recognition elements, status symbols, growth potential, creative opportunities and freedom to act are just a few of the potential drivers of behavior among the well-fed. But the moment an employee perceives their compensation as literally inadequate, most of those non-economic total reward elements will lose their engagement power.
People behave differently according to how they are paid. As discussed elsewhere, one employer discovered that moving folks up to their midpoints cut turnover by 9% while paying folks more who are already over their MRP has no benefit at all. Simply smartly reallocating your payroll increase dollars can save a lot of money by cutting attrition and improving morale without any increase in the spend.
Pay has its place and that place is first. When the pay is right, other compensation and total reward elements can be added to improve and perfect the employee value proposition.
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.
Creative Commons image "They Call Him 'Little Joe'" by JD Hancock
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