Show me the Money!

ENRON, WORLD COM, controversy over Jack Welch's retirement package from General Electric, countless articles complaining about the exorbitant compensation packages of CEO's in spite of declining shareholder value, demands for wage concessions in the beleaguered airline industry as a part of their bankruptcy reorganization plans, and on and on one could go.

In my experience the issue of compensation has been a constant challenge. What is fair? How much is too much? How do we attract and retain the caliber of employees that competing in the global marketplace demands?

I suggest that leaders might want to look at this issue of compensation in a different way. People work for money! Where they work, how long they stay with an employer, how hard they work, and how dedicated they are to achieving the goals of the organization has a great deal more to do with how much they feel valued and appreciated by their employer than just the monetary compensation they receive.

If leaders hold the view that the only reason people work is for money, I have two thoughts:

  • disregard the balance of this monograph; and,
  • I hope you have a lot of money!


Of course, at some 'price' you could probably get me to do almost anything. Given the realities of the extraordinarily competitive global marketplace, organizations simply cannot afford to use money as the primary inducer of behavior on the part of their employees.

The Appreciation Package

The appreciation package has four components:

  • the compensation package - wages/salary and benefits
  • opportunities for personal growth and development
  • personal recognition
  • the nature of the work itself.
Compensation: It's all about equity!

Four central questions capture the concept of equity:

  • Am I compensated fairly for the skills and capabilities I have and the work that I do compared to what others receive in other organizations in the same geographic area?
  • Am I compensated fairly for the skills and capabilities I have and the work that I do compared to what others receive within my organization?
  • Do I participate fairly in the success of the enterprise?
  • Am I fairly and adequately recognized for improvement in my personal performance?


Most organizations of which I am aware do an excellent job in ensuring that they have competitive pay systems relative to competing organizations in the labor market areas in which they operate. These same companies also have excellent methods for determining relative value of jobs within their organization as well as fair and equitable methods for recognizing individual performance.

Unfortunately those same organizations don't do nearly as well at communicating their compensation philosophy, principles, programs and their implementation as they do in developing them.

Usually employees are given an overview of the compensation programs when they are hired and/or when changes to the program are made. In my experience, organizations can and must do a much better job of explaining and re-explaining their compensation programs and must do so as frequently as needed so that employees truly understand how their compensation is determined, where the compensation levels stand in relation to other organizations, the mechanics, etc.

The most effective method that I have seen includes a comprehensive review - one-on-one - of the compensation program and its impact on the individual during the anniversary or birthday month of the employee.

Benefit programs:
It's also all about equity!


The same four questions listed above for compensation also apply to benefit programs - pensions, health care, vacations and holidays, educational assistance programs, other perks, etc. A fifth question should also be asked: "Do we have fundamentally different benefit programs for certain 'classes' of employees?" If so, we may well be headed for trouble!

The most successful organizations have the same elements within their benefit programs for all employees. For example, all categories of employees are provided health and life insurance, the same paid holiday and vacation schedules, etc. Of course, the 'level' of benefit may vary based upon position and/or level of position within the organization. CAVEAT: If you can't explain the 'why' behind the differences, don't have them!


For example, employees simply can't understand why the highest paid employees have 'executive dining room' privileges where those most able to buy their own lunch either have free lunches or those lunches are highly subsidized by the organization. "What's up with that?!"

It's all about equity!

Variable compensation: In most organizations, the compensation of employees who are "non-exempt" under the Fair Labor Standards Act and 'junior' level exempt employees have little, if any, of their pay "at risk". Usually the only variable portion of the pay is the amount of overtime hours they are able to work. Contrary to what most executives and managers think, they (the leaders) really don't control the amount of overtime employees get - the employees do.

Individual piecework rates do provide higher variability. However, virtually all organizations that at one time had piecework pay systems are discarding them since such pay systems are extremely difficult to maintain accurately and are counter to the collaborative work activities required in today's very complex and highly competitive marketplace.

Suggestion: All employees should have a portion of their pay (beyond just overtime) variable or "at risk". As the level of responsibility becomes greater, the greater the proportion of ones' pay that should be variable or "at risk".

The factors upon which variability is based should also be the same:

  • performance of my work group
  • performance of my plant, division, function
  • corporate performance.
An example of one such system in a unionized, manufacturing company may better describe this concept. In this organization, the work of the business is organized around workflows into natural work groups - those 8 - 12 people who perform a discrete, measurable piece of the product.

Part 1 of variability: Employees, in each natural work group, participate in establishing that work group's budget with corporate and plant budgets. The work group - as a group - participates in cost saving sharing based upon how well they 'manage' consumable supplies - work gloves, welding rod, etc.

Part 2 of variability: Employees within the plant can earn a temporary (one year only) increase in their base rate from 0 - 3% for next year based upon the level of achievement of jointly set goals in the current year. Goals include such standard measures as plant budget attainment and quality and safety achievement, which would account for 1 1/2 - 2% of the potential increase. The goal(s) for the other potential of 1 - 1 1/2% vary from year to year based upon key issues and/or projects facing the plant. One year it might be ISO certification. Another year the measure might be successful new product introduction.



Part 3 of variability: Employees throughout the entire company participate in a corporate-wide incentive plan that is based upon total corporate performance on such indices as market share and operating profit. Stock options are also provided for all employees.

As mentioned earlier, the proportion of variability or "at risk" income varies depending upon the amount of responsibility involved in that person's job. Production employees, some administrative support employees, for example, have a total (excluding overtime) amount "at risk" of 8 - 12%. The CEO, on the other hand, has nearly 60% of his/her total compensation "at risk".

In George Orwell's words, "some pigs are more 'equal' than others."

As in all other aspects of the employee-employer relationship, communication is key. All the best programs in the world simply won't work if they are not fully understood and accepted as fair by the employees.
Particularly in the very sensitive area of "my money", we simply cannot over-communicate!

Recognition

Money as recognition.
A case study



Jane works for you, does very good work in every part of her job. Last year at merit review time, you gave her a 5% raise by saying, "Jane you did a great job this year - in fact the best! As you know, the company isn't doing too well this year but I got you the largest raise anyone got. Thanks for your great job!"

Jane believed you when you said she got the largest
raise of anyone, (or more likely she checked and found out that this was true) and she is very pleased with her new salary.

At the end of 2002, you sit down with Jane again to discuss her performance and talk about her merit increase. You say, "Jane, you did your customary excellent work this year and the company is doing very well. I am pleased to be able to tell you that your merit raise this year is 10%!"

Jane's salary history:

2001 salary
5% merit increase
2002 salary
10% merit increase
2003 salary
=
=

=

$60,000
3,000
$63,000
    6,300
$69,300
Again, Jane checks with others and finds out that John got a 12% raise, Mary got 10% and Joe got 11%. Regardless of the rationale behind the increases given to Mary, Joe and John, we spent twice as much money in a raise for Jane to make her really mad!

Why? In 2001, the merit raise given to Jane indicated to Jane that she was the best performer in the department. The 2002 merit raise indicated to Jane that she was no longer the best performer. Regardless of the intent, that's what she heard!

What happened? Two suggestions:

1. In this case study, discussions of an employees performance and the awarding of merit increases occur at the same time. This is a trap.

When these two discussions are linked, the employee is much more interested in the amount of his/her merit increase than she/he is with performance review and development. If you withhold the merit increase information until after the performance discussion, the employee is hoping you will hurry up and get to the 'punch line'.

If you tell the employee about his/her merit increase first, she/he is either very happy or very angry and will not hear the discussion of performance.

SUGGESTION: Separate discussions of performance from awarding of merit increases by at least 60 days. When discussing performance and personal development, don't talk about money. When talking about money, don't talk about performance.

Of course they are related. Other factors in addition to individual performance, however, are normally included in the determination of merit increases - organizational performance, the employee's position within his/her rate range, adjustments to job content, etc.

2. In 1966, Fred Herzberg, Professor of Psychology at Case Western
Reserve University wrote the book, WORK AND THE NATURE OF MAN, in which he described his "motivation-hygiene theory".

Dr. Herzberg writes "money is motivator only when it is perceived as recognition for achievement". In all other cases, according to Dr. Herzberg, money must be managed to prevent it from becoming a dissatisfier.

Jane's merit raise in 2001 was, to her, recognition for achievement. In 2002, her merit raise was a dissatisfier.

Decoupling performance discussions with merit raise awards as suggested, will help. Setting one's expectations of the potential dissatisfaction in preparing for the discussion will also help. The more employees understand the compensation system, perceive it as fair and equitable, and know what factors go into merit raise determination the less frequently will these kinds of events occur.

Other forms of recognition

Employees perceive a surprisingly broad array of 'other things' as forms of recognition for achievement. The list below includes some of them.

  • meaningful personal development and growth
  • opportunities to learn new things
  • "plum" assignments
  • conference participation
  • birthday and anniversary cards
  • thank you notes
  • public statements - newsletters, bulletin boards
  • lunches/dinners
  • exciting, rewarding jobs
  • opportunities to provide input into the problem solving and decision making processes
  • customer/supplier visits.


The Big, Simple One!

SUGGESTION: Executives and managers 'reward' with their attention those people who are doing what they should not be doing!

Think about the employees with whom the executives and managers spend most of their time. They are employees whose behavior and/or performance need to be improved or changed.

In the daily lives of leaders and managers, they walk by the overwhelming majority of employees who are doing their jobs extraordinarily well en route to the 'problem' area of the moment. Who got the majority of your attention today? Yesterday? Last week?

Those of us who are parents have witnessed temper tantrums on numerous occasions. Experts tell us that the child behaves that way in order to get the attention of the parent! Do employees deliberately do things wrong to get our attention? Probably not - but it's worth a thought!

I know of no more powerful way in which to
let people know that they are appreciated, as
both employees and as people, than simply
walking up to them, for no apparent reason,
and sincerely saying "thank you, I really
appreciate what you are doing"!
It is really
that simple! More importantly, this gesture is
extremely powerful - unfortunately because it
is so rare in the experience of most employees.

One operating vice president that I know is away from his facility on other business for the company about 25% of his time. Every time he returns, the administrative assistant with whom he works, gives him notes of positive things individuals and/or departments have accomplished while he was away. On his first day back , he walks through the facility and speaks to and thanks those people. He does this without fail!

I suggest that you have the same 24 hours each day that other leaders have. Some find the time to show their appreciation. It is a matter of what is important to you and to the organization.

SUMMING UP

Ensuring that employees feel that they are appreciated is among the most important things that a leader or manager must do. In fact, I suggest that this is a major portion of his/her job!

The Appreciation Package

. compensation that is perceived to be fair - equity
. benefit programs that are perceived to be fair - equity
. variability in compensation tied to individual and business performance
. formal and informal recognition
. saying "thank you".

People with stay with and work hard for an organization in which the total appreciation package is in place! To the extent that the total appreciation package is not in place, the more we will hear: