Is it crucial to maintain a competitive pay posture to attract and retain high quality talent?  We think so (that why we spent over a year writing a book about how to do it!), and most HR and rewards professionals believe that as well.  But does paying competitively make your people happy, engaged and/or driven to perform?  Generally not, unless you're using a well-designed incentive program to drive certain behaviors (but that only addressees the behavior component).

Competitive base pay is absolutely critical to attract talent, and to maintain a basic level of satisfaction with the compensation that employees receive for voluntarily sharing their skills with your organization.  Beyond base pay though, what really drives motivation, worker engagement and the desire to stay with an organization are how you manage and treat them.

See the table below and tell me what you think of the difference is between an employee who is willing to stay with your organization because they are basically satisfied (but not terribly engaged) vs. an employee who really wants to stay with your organization and believes in it (i.e. is engaged).

Source: Employee Hold'em, 2009

The data above is from a large study done every two years or so by by an organization that focuses on employee engagement, and the results are clear: it's not just about the money!  In fact, we would argue that how you manage and treat your employees is more important than the money, assuming the money is about where it should be (you're paying at least close to or better than competitively).

With dollars scare these days (over 50% of employers gave 0% - or less - pay increases last year, and 2010 pay increase budgets are south of 3% for now), how you treat your employees is even more critical.  Hence, there is a growing movement towards more qualitative rewards (feedback/communication, appreciation, training, etc.) , as opposed to just quantitative ones (mostly pay and benefits)

We'll continue to bring you more information and data on this large topic of worker psychology, qualitative rewards and employee engagement in the coming months.

Don't miss an opportunity to sign up and participate in these upcoming events:

Compensation, Rewards & Employee Engagement Trends - 2010 and Beyond (approved for 3.5 HRCI Credits)
Date: May 13th, 2010 8:00 AM to noon
Location: Bellevue Harbor Club
Cost: $295.00
Register for this Event

Organizations are struggling to keep up with changes in salary and compensation trends. As the economy recovers, what is the future of pay and employment? What can employers do to retain and re-engage talented employees? In this half-day session, participants will explore 1) the latest compensation trends and future rewards thinking and 2) the elements of a successful employee engagement and recognition strategy. Participants will take away low-cost tools, ideas and resources to build a culture of appreciation within their teams and organizations. Workshop instructors include StrategicPay Series creator, Doug Sayed and Chief Motivation Officer, Theresa Chambers of Recognition Works. The program will be held at the Harbor Club in Bellevue from 8am to noon. The program includes a continental breakfast, parking validation, as well as a discount coupon to purchase the Base Pay Toolkit worth one-half the tuition cost alone, if interested.

 
Utilizing Market Data & Conducting a Competitive Pay Analysis (approved for 3.5 HRCI Credits)
Date: June 10th, 2010 8:00 AM to noon
Location: Bellevue Harbor Club
Cost: $295.00
Register for this Event

This half-day program will focus on how to conduct a market-based pay analysis, including selecting and using pay data sources, grading jobs into a salary structure and evaluating how the company measures up.  This is an advanced, in-depth course.  Participants will walk away with a working knowledge of the subject matter, as well as the tools and templates to execute in their company.  The cost includes a continental breakfast and parking validation, as well as a discount coupon to purchase the Base Pay Toolkit worth one-half the tuition cost alone.

The StrategicPay Blog would like to thank fellow Compensation Cafe blogger Darcy Dees, for her contribution of this excellent posts on incentive plans.  Thank you Darcy!

Jim Collins wrote a book entitled Good to Great that discusses the importance of having the right people in the right jobs at your company in order to be successful.
From Jim Collins's website: This book addresses a single question: Can a good company become a great company, and if so, how? Based on a five year research project comparing teams that made a leap to those that did not, Good to Great shows that greatness is not primarily a function of circumstance; but largely a matter of conscious choice and discipline. This book discusses concepts like Level 5 Leadership, First Who (first get the right people on the bus, then figure out where to drive it), and the Flywheel.

I buy into that concept, but I've never really liked his analogy of having the right people in the right seats on the bus.  Unless you're a character in Speed, bus passengers are passive participants in the bus ride; only the bus driver can make the bus go in a particular direction.  So this comparison leaves a bit to be desired because it would indicate that only one person has an impact on where the company goes.  You may ask:  What difference does the analogy make if the underlying theory is sound?  I believe that inappropriate correlations can cause skewed thinking and result in skewed decision-making.  I sometimes wonder if this analogy has been used to justify some of the excessive executive compensation packages we've seen.  If you believe only the bus driver matters, you're going to pay that driver really well.

I've always preferred the analogy of a rowing crew.  You place people in the seat that utilizes their individual strengths and everyone works together to achieve a common goal.  You must row in concert and in the same direction in order to get where you need to be.  You won't do as well if you have weakness in any seat, but there are particular seats that need a stronger performer than others.  So in business parlance, you can get by with "B" players in certain seats, as long as you have "A" players in the most important seats.

From the perspective of the rowing crew analogy, I think this is why more and more businesses have extended participation in cash incentive plans deeper into the ranks.  (Well this and the fact that it decreases the pressure on the fixed cost of base pay).  An incentive plan can make sure everyone on the "boat" understands where they're trying to get to and how to get there.  Incentives are sometimes overused and misused, which is why Dan Pink is selling so many books.  It doesn't do any good to tell someone lying at the bottom of the boat without an oar to take us someplace, line-of-sight is imperative.  But an incentive can be a powerful tool for motivating your team who are holding oars and reaching an agreed upon destination.

Incentive plans, just like analogies, usually aren't perfect.  But they both continue to be used because they can help achieve goals and improve understanding.  It is important to continually review to make sure that they are working as designed and aren't doing more harm than good.

Darcy Dees, CCP works as the Compensation Manager for Rock Bottom Restaurants, Inc., headquartered in Louisville, CO.  She has worked with RBR for nearly 10 years helping to develop many of the compensation and performance management programs the company uses today.  She spends what little free time she has hiking and reading.
The opinions expressed here are the personal opinions of Darcy Dees. Content published here is not monitored or approved by Rock Bottom Restaurants, Inc. before it is posted and does not necessarily represent the views and opinions of Rock Bottom Restaurants, Inc.

Image:  Creative Commons Photo "Tufts, Head of the Charles" by crschmdit

Pay increases in 2009 were at an all-time low, at least since good records have been kept on this type of data. In 2009, over 50% of companies either froze pay or worse, by far the highest pay pull-back/retrenchment numbers I have seen in my 25+ year career in HR and compensation.

2010 portends to be a bit better for employees, but employers are still keeping a pretty tight clamp on their purse strings, and understandably so, with economic recovery still looking a bit tepid.  Predictions are for pay increase budgets of about 2.7% in 2010, a vast improvement compared to an average 1.8% increase in 2009, by far the lowest year on record. Both of these data points are from a recently released Hewitt report.

Variable pay budgets (budgets for incentive or "bonus" programs) are expected to remain stable at about 12% for 2010. While the 2010 variable pay budgets are about in line with 2008 and 2009, the long-term trend has seen a slow but steady upward march, and we at the StrategicPay Series expect that trend to continue.  In 1990, corporate variable pay budgets were about 5% of payroll, and today they are more than double that, while merit pay budgets have been at historically low levels since the 2001 recession. 

Hewitt expects variable pay budgets to slowly continue upwards.  In a study released in the spring of 2009, Hewitt predicted  an average variable pay budget of 16% of payroll and a base pay increase pay budget of 2.0% in 2020.

While, of course, no one knows what's going to happen 10 years into the future, the predicted trends are clear: continued pressure on fixed-cost compensation increases (i.e. base pay), combined with a continued willingness to pay for performance, in the form of variable pay.  We agree.

Note: this is an updated version of my recent Compensation Cafe Post.

Amid all of the talk about motivation and incentives in the past few months, as HR and compensation influencers, we need pay attention to what we're paying for, why we are paying it (are we getting what we think we're paying for?), and in communicating this information throughout our organizations.

In their classic book "Pay People Right," Zingheim and Schuster argue that base pay should be pay for ongoing value, not for results. Each person brings to work their unique set of education/training, skills, experiences and talents, and base pay is to compensate for use the of skills and abilities that employees bring to work every day.

Zingheim and Schuster go on to say that variable pay (typically in the form of short-term cash incentives) should be used as pay for results. Using their model, we can use base pay to pay for what I call the employee's "toolkit" (all those skills, abilities, etc.), while reserving variable pay for the actual results achieved via a combination of the employee's abilities and efforts.

Although employee efforts are a key component of achieving desired outcomes, efforts do not always equal results, and so we should separate them from each other in terms of pay and rewards.

Efforts are critical though, especially those "discretionary efforts" that we as HR and rewards professionals seek out, and thus, while we probably shouldn't pay for them per se, we certainly can recognize, applaud and occasionally even celebrate these "above and beyond" efforts.

In the book "17 Rules for Successful Companies Use to Attract and Keep Top Talent" author David Russo states ("Rule #6") "applaud effort; reward contribution" and I couldn't agree more.  Efforts are critical, and worthy of recognition and applause, but not of pay per se.

If we pay for effort alone, in the absence of tangible results, we run the risk of creating rewards confusion (especially for those who actually achieve intended results) and possibly of mis-placed rewards expectations and/or feelings of entitlement ("I busted my butt on that project...").

Of course, we need to be clear and transparent about what we pay for and why; what base pay is for, and what variable pay/incentives reward. If we don't do that, many of our pay related programmatic efforts will be waisted, because people will not understand what they are paid for and how they can improve their own personal rewards system.

Doug Sayed is principal at Applied HR Strategies, a Seattle area compensation consultancy and author of the StrategicPay Series Base Pay Toolkit, a hands-on, "do-it-yourself" (DIY) guide to developing a strategic market-based compensation program, complete with dozens of pre-built tools and templates, ready for use.

Incentives have been a very hot topic on the WorldatWork community website lately, generating more comments than any topic to date. Some say they work, some say they don't, and some folks just just got downright nasty about it. 

To see my take, see my post at the Compensation Cafe.

One of my favorite HR/compensation bloggers is Paul Hebert of the Incentive Intelligence blog and "i2i - A Validation & Incentive Planning Consultancy."

Paul has posted one of his classic rants, this time about an incentive program myths article posted on the American Express website (that's right - the credit card company).

Paul's post is certainly worth a read if you happen work with incentive programs, or hope to some day, since there certainly are a lot of myths about them, such as that they boost morale (not! - usually), or that they show the employer is generous by offering incentive compensation (ha!).

Happy reading and ranting!

What a perfect time to talk about bonuses, one of the most overexposed (and overheated)
terms used in the English language recently.

You may have noticed that bonuses have been in the news a bit lately. Unless you've been living in a cave in Afghanistan, it would have been difficult to have missed the recent uproar over the AIG bonuses (announced publicly on a Saturday and paid out the following day – who pays bonuses on a Sunday?), or the $3.6 billion handed out at Merrill Lynch just before their purchase by Bank of America was completed - because they were in financial trouble.

It would be difficult for even the great Mark Twain to wordsmith the AIG or Merrill Lynch bonuses as "pay for performance."  If he were with us today, I'd love to hear his thoughts on the subject—he'd have a field day!

First, let's talk about what a bonus is, and why we compensation professionals should
probably be talking about incentives, instead of bonuses. The terms are often used
interchangeably or synonymously, but they are not the same.

A bonus is simply a one-time payment, which may or may not be tied to "performance" (or anything for that matter).  Conversely, an incentive payment is a payment that that is tied to the achievement of pre-determined performance goals.  With a with a well-designed incentive program we do though, because it's thought out, built into the business plan, budgeted for (hopefully!), and paid only when certain performance thresholds are reached.

Since a bonus is just a one time payment, we get all kinds of interesting ones, including
some that make sense and some that don't.  We have "spot" bonuses, hiring bonuses, retention bonuses, the Christmas bonus, discretionary bonuses, and my all-time favorite, the "guaranteed" bonus, which apparently many of the AIG ones were.

Instead, to add greater common sense and accountability the business of incenting for higher levels of performance, we should move the discussion from bonuses to incentives, since there is a meaningful difference.

Executives, shareholders, and other stakeholders in a business' success are generally not
opposed to paying for performance, assuming performance is defined (and then earned), as in the case of well thought-out incentive program.  Well-designed incentives help add direction and emphasis to goal-driven behavior, and can help organizations work towards common strategic goals and the achievement of other key objectives. Bonuses are just payments, which may or may not deliver anything of value.

So, the next time the topic of bonuses or pay for performance come up, let's step up and
talk about incentives; real ones, ones that will make a positive impact on your organization.  You'll be doing yourself and your organization a huge favor.

Doug Sayed, SPHR, CCP, is one of the Base Pay Toolkit authors, and lead developer of the StrategicPay Series, a series of "do it yourself" toolkits designed to help HR professionals develop key strategic compensation programs.