Archive for the "Bonus & Incentives" Category

Compensation Cafe: Keeping Investments in People Top of Mind

By Derek Irvine

Compensation Cafe logoRecognize This! – The investments that companies make in employees can be difficult to keep top of mind. Recognition is one solution that communicates the value employees have on a frequent and timely basis.

The business world seems to moving faster than ever, challenging employees and leadership teams alike to keep up. These changes are affecting a wide range of HR processes and systems as well. From the annual employee census to pulse surveys for engagement, from infrequent performance appraisals to ongoing coaching and development, it is becoming ever more important to provide frequent and high-touch experiences for employees.

In today’s post on Compensation Cafe, I discuss what these trends mean for the full range of investments that companies make in their people- spanning salary, incentives, and benefits- and how difficult it can be to keep those things top of mind. Looking across just some of the trends above, I argue:

A similar transformation is needed in the way that companies communicate (and keep top of mind) the value and investments that they make in their employees. For the sake of argument, I suspect that salary, incentives, and benefits are not top of mind for the typical employee on a frequent basis. Much like traditional performance appraisals, there are certain times of the year when these aspects are at the fore (e.g., open enrollment and the pay discussions within the performance review period). But there are also large portions of the year when these issues rarely rise to the top.

While there are clear exceptions to the above, for the typical employee, daily work responsibilities can easily consume most of one’s attention and effort. As a result, the investments that companies make across salary and benefits can be easily overlooked. At a minimum, employees may miss out on the personal value that benefits may confer; at worst, they may perceive better opportunities elsewhere.

To guard against these consequences, companies need to find better ways of reinforcing the value they place in employees. As I write in the full post:

One such approach within the scope of a total rewards portfolio is through social recognition. Social recognition can provide a daily reminder of the value that companies find in the work their employees do. It provides ongoing communication of the investments that a company makes in their employees, through messages of gratitude and appreciation from both managers and peers.

In pure value, investments in recognition (typically around 1-2% of payroll) may also go further than investments in other incentives or salary increases. Complementing the total rewards package, recognition is one investment that a company can make that will remain top of mind.

How does your company communicate the value it places in employees?

Compensation Cafe: Chasing Best Practices

By Derek Irvine

Compensation Cafe logoRecognize This! – Research on best practices can help a company know what to focus on, but leaders need to consider how those practices play out in their own unique cultures and situations.

Benchmarks and best practices can give company leaders insight into what those around them are doing, how much they are spending, and how well they are performing. These data are especially useful when aligned with the strategic direction a company has set, ensuring that time and resource investments are directed to where there is the most value.

A recent report from PayScale, which I covered in this post on Compensation Cafe, helps to provide some useful data around compensation practices, particularly among top-performing and average companies. Here’s what they found in their research:

It turns out that high performers are more likely to provide pay increases (90% compared to 84%), bonuses (81% compared to 74%), and are also likely to leverage more of a compensation mix. High performers are also more likely to adopt a mindset in which people are valued and engage in more transparent communication around compensation.

The important question for many companies is what to do with this information and what best practices should be adopted as a result. For leaders looking to drive change, it helps to know where to focus attention, as well as what the causal direction of relationships between organizational practices and performance are.

As I write in the full post, if we look across the available research, one conclusion is:

…there appears to be some evidence that a set of compensation practices can relate to increased performance, and it is good for clients to be aware of those as possible benchmarks. But, I think it is also important to think in terms of broad, rather than specific practices. We may be better served by looking at practices that have the ability to enhance motivation instead of just doling out raises, for example. Specific practices may also work a little differently across contexts, with each company developing a unique definition of compensation transparency vis-à-vis the local culture.

Compensation is still just one piece of a complex set of organizational design practices, including how to make work more human, that ultimately contribute to performance. Many of these practices combine to influence employees’ perceptions of their workplace. The key to best practices then is not to do just one thing well, but to do many things well that communicate the value that employees have.

What best practices do you think have the most impact, and how are they best applied?

Compensation Cafe: It’s Time for Executive Recognition

By Derek Irvine

Compensation Cafe logoRecognize This! – Amid debates around the effectiveness of fixed and variable executive pay, recognition is well positioned to motivate executive behavior and performance.

Opinions of executive pay, and whether performance is better under fixed or variable schemes, depend in large part about basic assumptions of what motivates executives. This debate was recently the subject of a pair of articles in the Harvard Business Review, which I discuss in this post over at the Compensation Cafe.

With evidence supporting both positions, it may be that a better answer to executive motivation lies in a supplementary solution: executive recognition. Recognition is uniquely positioned to balance the benefits associated with both approaches, while minimizing the potential downside.

What are the arguments on both sides that recognition may address? Those in favor of variable schemes suggest that linking pay to performance is the only way to avoid “coasting.” Executives need to be incentivized to make difficult decisions and perform at the highest levels. Others suggest that variable pay is ineffective because it goes too far in the other direction, encouraging cheating and a focus on the short term. Executives are mostly intrinsically motivated anyway, so a fixed salary is all that is needed.

Here is what I wrote over at Compensation Café about leveraging recognition as an effective motivator, in addition to whichever pay scheme is implemented:

Recognition, on the other hand, may be a valuable alternative that addresses arguments made in both articles. To start, it is tied to specific behaviors and actions the executive takes, and can be frequently provided by any member of the executive’s top leadership team or other individuals with clear insight into particular issues facing the organization.

Recognition also works to improve the intrinsic motivation of behavior because it communicates meaning, value, and contribution- and because it is unexpected, avoids the “crowding out” phenomenon. Executives can be recognized for their creativity in challenging situations, ethical choices in response to crisis, as well as other behaviors that represent the full continuum of what makes an executive successful within a specific organizational culture and/or industry. The frequency and specificity of recognition also encourages positive cycles of performance, avoiding the potential pitfall of “coasting” and inaction.

Click through here to read the entire post. Executive recognition may be a strange concept in an age of traditional command-and-control leadership, but will become increasingly important as organizations shift away from that model and toward a more empowered human-centered design.

What do you think – is your organization ready for executive recognition?

The Not-so-secret Formula to Making Incentives Work

by Derek Irvine

Thumbs upRecognize This! – To be effective, recent research suggests incentives are best paired with recognition.

Whether or not incentive programs are effective has been a long standing question, spanning multiple academic disciplines. Some point to studies demonstrating the motivational potential of performance incentives, while others point to a “crowding-out” of intrinsic motivation when incentives are present. Given the data that has amassed on either side of the debate, where do we stand today?

Some recent research may help shed light on this question. Using a field experiment to assess the conditions when incentives become more or less effective, several interesting findings emerged. First, the authors found that the use of monetary incentives alone actually contributed to decreased performance, where the task was simple data entry of sports data in exchange for base plus piece-rate pay. Initially, one might assume that incentives crowd out the intrinsic interest and value that workers may place in a task.

A second set of findings, though, provides some more color to that conclusion. The researchers found that incentives, when combined with motivational language, actually resulted in improved performance, in terms of both quality and quantity of work. According to the study, motivational language is defined as conveying the value of the task at hand, as well as the manager’s affirmations of a worker’s conscientiousness and ability to complete the task – in other words, recognition and praise. This suggests a combination of incentives and detailed messages of recognition can avoid the pitfall of overcrowding intrinsic motivation.

At this point, a business leader may be asking, so what if we just cancel the performance pay program and train managers to give motivational speeches? Well, it turns out to not be quite that simple. The research found that motivational language alone was unrelated to performance. These results help us to understand that it’s both the actions and the words of incentive strategies that truly matter, rather than relying on either in isolation to help drive performance.

All of this got me thinking about the variety of ways compensation and rewards professionals can leverage these findings in practice. One approach may be to shift incentive budgets towards activities where dollars and motivation are more natural bedfellows.

Take for example, a recognition and reward strategy where this might be the case. First, a message of recognition explicitly signals the value and meaningfulness of someone’s contribution to the team and the appreciation of their coworkers. That message, coupled with a reward commensurate with the value of the performance effort, contributes to both of the motivational forces identified by the research. The result is the reinforcement of high-performing behaviors, as well as a signal to others in the company about what success looks like.

What have you seen work when it comes to the effectiveness of incentives and recognition?

The Secret to Scaling Up with Recognition

By Derek Irvine

Climbing stairs to successRecognize This! – Peer-to-peer recognition is an effective and powerful way to scale up behaviors that align to organizational success.

One of the most difficult things for leaders is scaling great ideas, behaviors, or performance- bringing excellence to more people and more places across an entire organization. This is no easy feat, but it can be done with the right culture.

One of the best things a company can do is nurture a culture of recognition. Shawn Achor, writing recently in the Harvard Business Review (and one of our incredible speakers for WorkHuman 2016), emphasized this point perfectly: “effective digital recognition programs can help scale organic praise, have a high ROI, and lead to significantly higher levels of employee performance and engagement, as well as increased customer loyalty.”

To scale a culture of recognition and achieve these benefits requires two important and interacting pieces. One is the set of organic expressions of praise between employees, thanking each other for the work and effort they devote to their work and colleagues. The second is the creation of a work context that enables and strengthens those positive expressions, connecting people through shared examples of what success looks like. A peer-to-peer recognition program connects these two powerful components.

Once scaled, the simple act of recognition becomes a strong driver of business performance, aligning behavior to core values across the organization.

In his article, Shawn presents some powerful research to support this. For example, our clients have demonstrated where a culture of recognition has helped them to improve engagement scores, reduce levels of voluntary turnover, and even improve the customer experience, often for a fraction of the cost of traditional incentives like pay increases.

Building on these findings, one of the most compelling arguments that Shawn makes: with a continuous culture of peer-to-peer recognition, “there is no indication of a tolerance point at which the engagement scores return to a baseline” as in the case of pay increases. Click here to read his article for more detail.

For organizations concerned with scaling excellence, and doing so efficiently, the implication is that recognition may not be limited to the same short-term benefits that pay increases are. Research suggests the “bump” from a salary increase only lasts between a week and a month. Instead, the benefits from recognition are likely to be more durable, precisely because of the frequent and organic nature of praise, and the way it creates a more connected and human workplace.

In short, recognition can bring the best practices out of the pockets of your organization, and scale up the behaviors that contribute to organizational success and competitive advantage.

How does your organization scale up and reinforce its own best practices?

Compensation Cafe: The Contradiction of Annual Incentives

By Derek Irvine

Compensation Cafe logoRecognize This! – Incentives are only effective when they match the timeframes of employees’ motivation to perform.

In light of a recent Willis Towers Watson report on the ineffectiveness of annual incentives, I wanted to take a closer look at how and why they motivate employee behavior. For me, it was important to start at the very foundation and really look into what we mean when we talk about annual incentives.

Click over to the Compensation Café to read the full post and why I think that annual incentives may actually be a contradiction in terms, which helps explain the ineffectiveness. As I go into more detail in that post:

Operational realities aside, there is even a more basic contradiction in terms underlying this notion of an “annual incentive.” First, incentives can be broadly defined through the following equation: “something that motivates an individual to perform an action.” We also know that for incentives to be effective, the time horizons of the “something” must match the timeframes of the action itself and the motivational drive to perform that action.

In the case of annual incentives, our new definition could be interpreted as: “something [given annually] that [annually] motivates an individual to perform an [annual] action.” Perhaps these types of pay for performance schemes might be perfectly suited for long-term projects or even jobs where there is stability in both the work and performance levels over time (especially over the course of an entire year!).

But what about everything else that we do at work that plays out over much shorter time-frames? This observation got me thinking and here are just some of the questions that initially came to mind:

So what do annual incentives mean at this point, especially from the perspective of the employee? What exactly is being incentivized, is it aggregate performance or a few examples of exemplary performance over the prior year? How much information is lost in connecting annual incentives to daily or monthly behavior? Most importantly, what is the motivational impact of the answers to these questions?

Read the full post and let me know what you think.

Compensation Cafe: Employee Engagement and Incentives Compensation

by Derek Irvine

Compensation CafeRecognize This! – Employees choose to give more and behave in desired ways based on the environment they are being asked to engage in.

Employee Engagement Is Dead! Long Live Employee Engagement!

What sounds like a non-sequitur may not be. Last week on Compensation Cafe I blogged: “Is Employee Engagement Moot in Today’s High Stress Work Environments?” in which I reflected on the seeming stagnation of employee engagement stats in the research across many organizations. I argue:

No, the error lies in how we are pursuing employee engagement. Yes, employee engagement is a two-way street. Employees must themselves choose to engage in the work, but employers must also offer conditions in which employees would want to engage. That’s where we’ve fallen down.

What must change? It’s time to go back to basics. Why should employees choose to engage in the organization’s greater mission, purpose, and goals and give additional discretionary effort to achieve them if (1) compensation is not equal to market rates or is insufficient to cover basic living needs, (2) the work environment is itself unsupportive or downright abusive, and (3) essential human needs of rest, restoration and the ability to meet the needs of the whole person are ignored.

Read the post for more on the backing research and how to change those three factors to improve employee engagement.

Then today, I blogged “The Tricky Business of Incentive Compensation,” examining research on when and how incentives can motivate, given the typically low performance of such schemes. As I unpack in the post:

What they found was that incentives largely worked… but only for certain people and in certain circumstances… If companies are primarily concerned with behavior that aligns to performance, shifting focus away from pre-designated incentives structures towards “surprise” programs that can recognize and otherwise reinforce those behaviors may be a valuable path forward. For example, if managers are recognized and publicly celebrated for a willingness to take risks like those mentioned above, the signal may be that much stronger for others to overcome that initial sense of inertia.

Again, click over for the full post.

Compensation Cafe: Keeping Top Employees in an Era of Disappearing Raises

by Derek Irvine

Compensation Cafe logoRecognize This! — Frequent, timely and appropriately calibrated awards can be a more effective means of rewarding employees fairly than mediocre merit increase budgets.

Without directly intending it, my last two posts on Compensation Cafe addressed how to keep and reward your top performers in a compensation world where raises seem to be disappearing.

In “Where Have All the Raises Gone?” I shared research from Aon Hewitt showing straight salary increases are near all-time lows while short-term rewards and bonus budgets (variable comp) are at an all-time high. I’m not surprised by this. “Merit increases” haven’t really exceeded cost of living adjustments in years. Instead, we should rethink how we define “performance-based rewards,” broadening this to include frequent, timely recognition and rewards for behaviors demonstrated, progress made, and lessons learned.

This built on the earlier post, “3 Tips to Keep Your Best Employees without Increasing Pay.” Drawing on insights from Sarah Kauss, CEO and founder of S’well, the post suggests fostering clear career paths, nurturing connections and relationships, and defining and encouraging deeper purpose are critical elements to creating a work environment great employees won’t want to leave. As Ms. Kauss says, “Find what’s going to inspire your employees to be their best selves, build a sense of loyalty, and ultimately a purpose in being a part of the team.”

Read both posts in full, then come back here and tell me, what is the best way to compensate, reward and recognize people of all skill levels and contribution histories? How do you keep your best employees? What was critical to you for staying in your role?

Compensation Cafe: How to Get People to Work Harder

Recognize This! — More money isn’t necessarily the answer to inspire harder work.

Compensation Cafe logoSometimes we need to get back to the fundamentals in order to move forward more quickly. This week on Compensation Cafe, I asked the very fundamental question – “How do you get people to work?” Of course, the basic answer is through a contract for a specified amount of compensation in return for a specified amount of work.

But we all know the employee contract is not that simple. If all we’re getting from employees is the bare minimum of what’s outlined in the job description, then we are not only failing as managers, we are failing the employee, too. Leaders owe it to employees to inspire, encourage and motivate in ways that help the employee engage more deeply in the meaning and value of the work being done – at a personal as well as a corporate level.

That’s the point of my post, where I also share insight from Barney Harford, CEO of Orbitz Worldwide, on this topic, too. Click over for the full post, then tell me, what gets you to work harder?

Give a Bonus of Heartfelt Appreciation This Year

by Lynette Silva

Thank You in woodcutRecognize This! – Even after a difficult year, giving employees the appreciation and recognition they deserve is an important bonus.

Last Summer I followed the Market Basket grocery store saga religiously. I was captivated by the story of non-unionized employees willing to risk their livelihood to keep their CEO. (Here are summary posts about the walkout and the outcome.)

After a six week employee walkout and customer boycott, it’s fairly safe assumption the company took a pretty big financial hit. Employees were rightly concerned that years-long traditions around holiday bonuses might not materialize. Then news broke this week that all associates would indeed receive their deserved bonuses. Local paper The Lowell Sun reported:

“In another sign of a return to normalcy at Market Basket, the company paid out bonuses to employees this week that match or exceed what the chain has awarded in past years. The Christmas and customer-service bonus checks are the first to be handed out since Arthur T. Demoulas returned to running the company in late August.

“‘If we do a good job on our customers and they reward us by shopping with us, we share in the benefit we receive,’ said Dave McLean, Market Basket’s assistant director of operations.

That’s a pretty significant layout, but the commitment to the employee first is the real message that rings through this story.

The Boston CBS news station shared a personal perspective from one employee, Jen Gelvez, who works in the Reading, MA, store office. Ms. Gelvez’s perspective is a brilliant summary of the two elements we must always remember when bonuses are given.

The money matters…

“‘I wasn’t too sure with what was going on in the summer, with the company going into debt,’ Gelvez explains. ‘I didn’t expect [a Christmas bonus] at all. I was just thankful to have a job.’

“But for the divorced mother of two girls, that bonus is Christmas. So when her store manager showed up Tuesday morning bearing bonus checks from Mr. Demoulas, Gelvez almost couldn’t believe it. “To actually receive a Christmas bonus this year was amazing,” she said.

This is always something to keep in mind with a bonus plan. People come to expect them over time. It’s becomes tradition and money that people count on as planned income. It’s great Market Basket was able to continue the tradition this year, but even more so for the sake of the tradition itself.

…but heartfelt appreciation matters more.

“‘Mr. Demoulas writes a beautiful letter every year that each employee gets,’ Gelvez said. ‘I almost cried when I read it this year.’

“Part of that letter reads: ‘The only way our company is able to provide these most-deserved bonus checks is because you, your fellow associates, and our customers had the courage to preserve and protect the culture of this company.’

“Gelvez tears up when she thinks about how lucky she is to work at Market Basket. For her boss, she says only: ‘I just want to thank him. For everything that he did. That’s all.’”

That’s the real message of the bonus. “We couldn’t have done it or continue to do it without you.” That’s what employees most need to know and want to hear – my work matters to the company’s success, to my colleagues, and to my boss.

That’s the real “bonus.”

What kind of special recognition does your company offer at the holidays?