Go Ahead, Pay More

by Chuck Csizmar - Aug 17, 2010

Everywhere you look these days 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 frozen, and the concept of pay-for-performance itself is coming under challenge. Across the country you can hear the constant litany of cut, cut, cut.

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. Already other functional departments (i.e., Marketing, Engineering, Advertising) have taken a different tact from that "me too" philosophy. Instead, 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 forward thinking fashion.

HR can stand out from the crowd.

Why not create a pay philosophy of greater rewards coupled with greater expectations?

Companies fear wasting money on those who don't perform, so they often limit the opportunities provided by their reward programs. They can't afford a reward strategy that balloons payroll without an adequate ROI. To take a different road they could increase the amount paid to key employees while restricting those who don't perform. That would place the high achievers in your organization at a fair or even generous pay level, but the winners here 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.

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 will be 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 granted won't be enough to recognize key players. Why? The merit spend is calculated on average performance, but high performers need much greater increases to feel recognized and appreciated. However, 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?

Of course not. 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 this make-everyone-happy tactic you will have encouraged more average performance and less high performance. Does that sound like your reward strategy?

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

The Management Fear Factor

• Fear that employees are somehow "owed" annual salary increases. We have to give them something.
• Fear of not knowing how to conduct effective performance appraisals. Do they really measure performance?
• Fear of alienating the majority of average employees (see bullet #1)
• Fear of exercising the discipline necessary to manage employees (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 you would retain more of those you want and rid yourself of those you don't. The employee performance bar would rise, fostering a dynamic work environment that will 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 the dollar cost is real, while the suggested gains are "soft"; promises that can't be guaranteed.

There is no easy way around this phobia short of direct intervention from the top. Lacking Senior management support compensation entrepreneurs 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.