Go Ahead and Pay More

It seems that everywhere you look in today’s still sputtering economy companies are striving to find ways of doing more with less;  jobs are eliminated and the survivors have to work harder, employee reward budgets are trimmed to the bone or pay levels frozen, and the concept of “performance = reward” doesn’t seem to function like it used to.  Across the economy you can hear the constant litany of cut, cut, cut.

As a result, employee morale has plunged off a cliff.

However there is one reward strategy you can employ that doesn’t involve following the popular drumbeat of negative messages and takeaways.   Other functional departments (i.e., Marketing, Engineering, Advertising) have already taken a different tract to deal with the new realities.   Creative minds set themselves apart, pushing brand identification to carve out market niches away from the beaten path.  Perhaps Human Resources could take a page from that playbook and view employee rewards in a more creative fashion.

HR can stand out from the crowd.

A changed philosophy

Companies fear wasting money on employees who don’t perform, so they often limit the administrative increases so often granted by their reward programs.  They feel they can’t afford a strategy that increases payroll without a corresponding increase in ROI.  However, they could increase the amounts paid to key employees while restricting the level of those who perform . . . less well.  That would place the high achievers at a fair or even generous pay level, but these winners would be only those who deliver an ROI back to the company.  You can afford to reward high performers, can’t you?

Employees who produce results are worth the money.  If you’re fearful of overpaying those who aren’t performing, you hold the solution in your hands / policy manual.  All it takes is the discipline to hold employees accountable and to take action against those who aren’t performing, who aren’t worth the money you’re paying them.

But that’s easier said than done, isn’t it?

Do you know what percentage of your workforce is rated at an average or lower level of performance?  50%? 60%?   If you still grant every employee an annual increase, you won’t be able to differentiate and properly recognize your key performers.  You won’t have enough money.  In that case the reward bar is inevitably lowered to cover the most common performance level.   Instead, why not raise the performance bar and get rid of those who can’t keep up?

If a manager has $10,000 for annual increases and tries to balance rewarding both high and average performers, the increases won’t be enough to recognize key players.   While the merit spend is calculated on average performance high performers need larger increases to feel recognized and appreciated.  A request to grant more than $10,000 will be denied, so what do most managers do?  They trim the increases of their best performers, in an effort to spread rewards as broadly as possible and keep everyone happy.

Does that work?

No, it doesn’t.   High performers will be discouraged and may rethink their future efforts as well as their commitment to your company, but your “Joe Average” will be pleased.  As behavior rewarded is behavior repeated, by using this make-everyone-happy tactic you’ll have encouraged more average performance and less high performance.  Does that sound like your reward strategy?

Okay you say, but if this concept is such common sense, why is the practice of holding employees accountable so seldom used?

The Management Fear Factor

Some managers fear what would happen if they took a tough line on performance = reward.

  • They fear that employees are somehow “owed” annual salary increases.  “We have to give them something.”
  • They fear their ignorance over how to conduct effective performance appraisals.  “Do these forms really measure performance?”
  • They fear alienating  the majority of  average employees (see bullet #1)
  • They fear what would happen if they exercised  the discipline necessary  to manage employees – because they want to be liked.

With a process designed to monitor and weed out the lower performers, and at the same time pay the higher performers well,  over time your new practice would retain more of those you want and rid yourself of those you don’t.  The employee performance bar would rise, fostering a more dynamic work environment that will in turn feed business performance.

You can afford to do this.  Consider the impact of increased performance levels on your bottom line.  Isn’t it worth the initial outlay of money to make that happen?

Caution:  The bean counters (Finance) are perennially afraid of spending a dollar to save two — or in this case, spending a dollar to earn three.  They believe that, while the dollar cost is real the suggested gains are “soft”; promises that can’t be guaranteed.

There’s no easy way around this phobia short of direct intervention from the top.  Lacking senior management support compensation practitioners will face a wave of passive resistance, if not outright defiance by managers tying to “help” the average employee.

Providing high performing employees with greater rewards can create a win-win scenario, a greater attraction for talented outsiders, an improved  team atmosphere focused on pushing the company forward — and less inequities to drag and drain the goodwill you’ve established.

Try it.  Spend a dollar and earn three.  It’ll be worth the effort.

Chuck Csizmar is the Founder & Principal of CMC Compensation Group,an independent global compensation consulting firm whose expertise lies in helping companies manage the effective and efficient utilization of financial rewards for their employees. He also maintains a popular blog on compensation at his website www.cmccompensationgroup.com.

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