By Garold L. Markle
In the middle of a seemingly endless heat wave, isn’t it ironic that so many businesses have salary systems that are frozen?
By presidential decree, U.S. government institutions and all federal contractors can distribute no merit pay increases either this year or next. No matter how solvent the organization or how significant an individual contribution, base salaries are on ice.
Meanwhile, businesses in the for-profit sector, not shackled to government, in many instances preceded them down this dismal path by a year or two. Let’s not even bring up the small but growing percentage of institutions that have actually had to cut base pay.
These harsh realities raise a variety of difficult questions. Among them is one that is both sobering and pragmatic for those who run organizations: How are we supposed to motivate people without money?
The short but sobering answer to this question is: The same way we always did. The only required change is that we may need to talk to our people differently.
Despite how we all act sometimes, employees are not our spoiled children and we’re not their rich parents. It’s time to have an adult-to-adult conversation about money. We need to discuss where raises really come from and why that makes sense.
Popular management mythology goes something like this: If you work hard and you do well, I’ll give you a good grade and you’ll get a big increase. As almost anyone with grey hair can tell you, that’s a lie. In reality, you don’t pay for performance at your company with base pay. You can’t afford to. And you shouldn’t even want to.
Regardless of state or federal legislation, written company policy or any other verbal posturing, an individual’s raise has been and always will be derived from four basic factors. They’re listed below in rank order:
1. Budget: Additional fixed costs the company can afford to invest (from here forward) in payroll, tempered with the reality of total company pay vs. relevant competition. If you’re operating at a loss and your competitors are in a similar spot, the only logical response is to cut or freeze. This is almost always done without reference to individual performance.
2. Compa-Ratio: What you are currently paying an individual employee compared to the market for this kind of work, in an organization of your basic size and type, in the geographic region from which you recruit. Compa-ratio is normally expressed as a percentage of current pay vs. salary band mid-point. Bottom line, the more someone is paid as you enter a calendar year, the less you’ll be able to give him in terms of an increase.
3. Performance: IF you have money AND IF your employee has room, THEN you can look at performance to influence the size and scope of her base salary adjustment. Please note, however, that increase percentages are generally tightly controlled by HR “Hog Laws” that make sure that one little piggy doesn’t get all the slop. In a 3 percent budget, for instance, it would normally mean a 5 percent cap. In other words, no one (even the rare individual getting maximum salary treatment) will be doing high fives or cartwheels down the hall following an annual base salary discussion.
4. Potential: An employee who has interest and ability to ascend up the organization’s hierarchy, coupled with a perceived likelihood that a promotion will occur in the next year or two, can be accelerated further and faster than her less aggressive counterparts. Even here, however, you’re still playing a zero-sum game with raises and HR Hog Laws will normally continue to prevent anything exciting from happening.
What does all this mean? In short, no company (including the richest corporation ever invented by man – Exxon-Mobil – where I served my first nine years) can motivate with base salaries on a sustained basis even when economic conditions are excellent. In tight times things aren’t as different as many of us think.
So, in a period of salary freeze or even cuts, what can you do to motivate without money? Below are five suggested focus areas:
1. Total Remuneration: Use bonuses to reward good performers, if it is part of an individual’s total compensation package and you have the funding. Otherwise, remember that medical benefits, saving plans, flexible work hours, the ability to telecommute or utilize unpaid leave are often valued by some people almost as much as base pay.
2. Communication: Have the above-outlined adult-to-adult conversation about pay with employee groups. Get it over while the budget realities are obvious. Straightforward conversation during a freeze will produce even greater dividends when things thaw. Utilize our “Salary Talk” CD available from our website.
3. Coaching: Stop labeling and grading employees like school children and start growing and developing them. Replace performance evaluations with a more enlightened and inspiring system like Catalytic Coaching.
4. Careers: Help employees have jobs with a sense of future. Steven Covey says, “It’s more important what you’re becoming than what you’re getting.” Again, use programs like Catalytic Coaching to help focus energy on the long term rewards for sticking with you and working hard.
5. Culture: Make yours a great place to work. This applies to the physical environment as well as the way you define jobs, assign tasks, ask people to work together, navigate around failures and celebrate success.
Garold Markle is author of Catalytic Coaching: The End of the Performance Review and No More Performance Evaluations! Gary is also founder and CEO of Energage, Inc. For more of his teachings go to Energage.com.
This article was first published in Catalytic Connection in August 2011.