So the object of a positive employee review is perceived to be a reward. Most people think of this exclusively in terms of salary increases, but there are so many ways to reward an Associate other Rewardsthan paying them more.

  • A promotion to greater responsibility
  • Bonuses
  • Company-wide recognition
  • A dinner with the boss
  • Company stock ownership
  • A greater share of company profit sharing
  • And of course, Salary increases.

What does a Salary increase represent?

A salary increase suggests that the employee is helping the company increase its profitability and that the Company believes the employee’s work is better, is more productive than last year, and therefore, the employee should be rewarded with additional salary.

As mentioned above, there are many ways to reward an employee for being more productive.  But before discussing each of those methods let us also discuss three parameters that usually become part of any increase in payment to employee.

  1. Affordability or profitability. If there is growth in profitability then the employee’s pay increase can be funded from this increase profitability.  If profitability is stagnant or non-existent, then pay increases will only serve to make the company less profitable
  2. Fairness, in the marketplace as a whole, and within the company. Many different situations make this subjective judgment a difficult part of the pay appraisal process.
    1. Has the employee hired completed their “trial” period?
    2. Was the employee hired at a bargain price or market price on initial hire?
    3. How has the marketplace changed since the employee was hired? Could s/he reasonably go to the marketplace today and find a better paying job?
    4. How do the other perquisites trade-off against actual total compensation? For instance is the quality of the workplace, benefits, work hours or other factors significantly better than at other hiring companies?
    5. Does this employee contribute to the overall productivity of the Company in much greater ways than other employees?
    6. Is the employee’s pay similar to others who are at the same level?
    7. Some companies use the Associate’s length of service. If the employee has been in the job longer but contributing no more than others, then their productivity is not increasing with experience. Why would you reward that?

Of the 8 types of rewards, 4 are basically non-monetary, and 4 have money associated.
The 4 non-monetary:

  • Dinner with the boss
  • A new title and/or expanded work scope
  • Company Wide recognition
  • A promotion to greater responsibility

And the 4 monetary rewards:

  • A greater share of company profit sharing
  • Bonuses
  • Company stock ownership
  • And of course, Salary increases.

The non-monetary rewards are often the most overlooked part of any reward system, and research shows that it is just as, if not more, effective than monetary rewards.  This assumes that the individual is already paid a fair wage.

Rewards

Recognizing the individual and the work they do is a key source of job satisfaction.

  • Dinner with the boss: easy, often overlooked recognition.
  • A new title and/or expanded work scope. If employees are accomplishing all the tasks given to them, then consider expanding their scope in a direction they have a lot of passion. And recognize the expansion with a different job title.
  • Company Wide recognition: a great way to make an employee feel very good about what they are doing for the company. Be cautious that others agree that the individual is outstanding of the recognition could prove demoralizing. This is often accompanied by a monetary award, more as a token than a serious bonus.
  • A promotion to greater responsibility: while listed as a non-monetary reward, this can often backfire if not accompanied with a salary increase.  A common practice in Silicon Valley, it leaves the recipient feeling like they are taking on increased responsibility and work, with no matching pay.  My suggestion is to always accompany more responsibility with more pay.  If you cannot afford the pay, then don’t do the promotion.

In the US we use a grading system in school of A, B, C, D, and F, with A as the highest. Usually discussions are around A, B, and C level associates (and D and F are on their way out the door.) How many A players are required vs. C players.  (This assessment should come out of your Performance Reviews)  Sometimes it is a direct grade delivered to the employee, and sometimes it is a written document listing the good and bad points.  The point is that you to compensate employees in a way that ensures you retain those you need.

Do you want all A players? Do you need all A players?  Is a working team which works well more important than particular stand-outs?  A players can sometimes come with a variety of other quirks that you may want to consider.

Some of the different types of total compensation that you might offer Associates

  • A greater share of company profit sharing: Profit sharing is a great way to tell employees that they are making a direct contribution to the overall profit of the c ompany, and the share of profit that they receive reflects their individual contribution.  This also has the down side advantage that if profitability declines then their take home also declines.  This creates the everlasting issue of how much of an employee’s pay should be salary and how much profit sharing.
  • Bonuses: are similar to profit sharing, but are often more formalized, often having a “target” amount to be expected if the employee achieves all of their objectives and the company achieves its objectives. But bonuses do not have to follow the norm.  Bonuses can be paid sporadically, for specific achievements or upon signing a new large clients, or hitting certain milestones.  Most studies show that sporadic, unplanned for Bonuses have the biggest effect.
  • Company stock ownership: You would like all employees to feel they are an integral part of the company.  That they will prosper as the company prospers.  This is often done with stock ownership, either in the form of stock grants or options.  In general it has been shown that employees need to see the value of this form of compensation in order to recognize it as more than a symbol of ownership.  This means an increasing value in the stock or dividends.
  • And of course, Salary increases. The most tangible recognition of an employee’s value.  My observations across large and small companies suggests that the most important part of this consideration is fairness.  People talk.  Maybe not specifics, but generalities.  They know that the first year increase is generally larger, as the company becomes comfortable with the Associate.  They have an idea of the range of that increase.  They also know what their friends tell them they are getting paid somewhere else.  There is the real possibility that if they think they can get 50% more pay, then regardless of everything else that is good at your company, they might jump.  Of course they want more money, but they also cannot understand why you are paying them so much less than their obvious value.  This is another problem with hiring A players.  Sometimes you don’t need A players for your work, and having an A player who sees what they might make somewhere else, causes them to push you for more money, even though, due to the nature of the work, they cannot contribute enough to justify the much higher salary.    Fairness to the Associate.  And Fairness to the company.

What should you do?

  1. Get the Culture and Motivation right. Do you explain the Vision of your company in the same way that other employees do?  Is that Vision Motivating to you?  Can you communicate that passion to other Associates and people external to the company?
  2. Create your own Performance Review outline.  Know what is important to you, your company and the Associate you are working with.  Define those tasks as clearly, and with as much objectivity as possible.  Check in often with Praisings, and make sure projects stay on track for agreed upon ETA’s.  Deliver One-Minute Reprimands as required.  Involve others in the process.
  3. Define the set of non-monetary rewards you will use. Decide the frequency and the breadth of these rewards.  Use them as your strategic method to increase your Associates job satisfaction.
  4. And finally, pay your employees fairly. If your company is not prospering, i.e., increasing their profitability, this may become very difficult, and conversations must be held with the employees to explain the situation, telling them what they can do to help the company increase profitability.  If the company is prospering then the issue becomes what compensation mechanism to use. Decide which mix seems to make the most sense for your company and then sell your decision to your Associates. Listen to what they say back to you. I come up with ideas for compensation that were flops with the employees.

Think, Motivate, Evaluate, Motivate (some more), Compensate.

 

 

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