How to Grow Part 2: Compensation Motivation

There are a wide variety of compensation plans in the corporate world, but if you’re a startup which one is the best option? When you’re looking to grow your team, it can be overwhelming deciding how to compensate your future employees while taking the compensation thresholds of your current employees into consideration. But know this: when employees understand how their achievements are valued and rewarded accordingly, motivation and engagement improve. Keep these things in mind when planning compensation for 2015. 

Good Job! Here’s Your Bonus

Typically a lump sum (year-end bonuses) are one tool that makes up total compensation. In fact, they made up 12.7% of payroll budgets last year. Year-end bonuses are more easily tailored to the specific job role compared to some other compensation rewards. While it’s easy for employers to lump the entirety of the bonus at one time - instead of a steady and consistent raise in base pay - how do employees feel about it?

Typically, employees are more receptive to the lump-sum bonus simply because the 1-3% raise doesn’t feel like much spread throughout the year. Bonuses tend to make employees feel more appreciated and subsequently, more engaged at work. When employees are recognized for good work - as positive reinforcement would dictate - they are more likely to continue that behavior. Consider a bonus for your employees if you are a lean startup and have year-end revenues or cash on hand. Remember that just like any compensation, your employees are required to report this on their taxes. 

Tweet This: Bonuses tend to make employees feel more appreciated and subsequently, more engaged at work. @Reviewsnap

Great Performance! We Just Don’t Have Much Cash…

Startups don’t always have the necessary funding to facilitate the typical year-end bonus or even an increase in pay throughout the year. Don’t worry, that doesn’t mean you can’t reward employees financially for their exceptional work. As a small organization, you can offer stock incentives as an alternative to a direct cash bonus. Now, there are different options for stock incentive plans. Nonqualified, restricted, and performance shares are just a few examples. 

At larger firms, stock incentives have become an increasingly popular means of motivation, albeit long-term compensation reward systems, for their employees. These organizations offer two types of stock rewards: 88% offer restricted stock and 64% offer stock options. Just because they are larger companies isn’t to say you can’t offer similar rewards for your small organization. You could translate that Wall Street stock into something more transparent for your company. Give employees room to gain emotional or professional “stock” in their work, their team, and their participation in the organization as a whole. Using ownership in the company (how you structure it) is a great way to keep senior level employees invested in the growth of the company and can be used as a recruiting tool when communicated properly.

Share on LinkedIn: Give employees room to gain emotional or professional “stock” in their work, their team, and their participation in the organization as a whole.

Outstanding Work! Keep it Up

Merit-based raises don’t have to be just money. That’s right… a raise doesn’t have to have a dollar symbol before it. Non-monetary benefits such as extra paid time off or even the coveted desk with a view of the skyline can instigate higher motivation depending upon the needs and wants of employees. While they don’t have to strictly consist of monetary rewards, organizations can offer a choice in a merit-based raise. If you have the financial wiggle room, give high-performing employees the option. Would you like X days extra PTO or X% raise for your outstanding work on last year’s project? Claire Bissot, former HR Consulting Manager at CBIZ Human Capital Services, said:

“HR people should be getting more creative in this area. We’re definitely seeing less extravagant rewards, and seeing more employees in non-executive and non-sales positions being recognized through reward programs with points, or with additional vacation days, for example.”

The use of incentive compensation is changing. Take a gander at the new scenery… what do you see? Stock options, vacation days, cash… Incentives like bonuses, stock incentives, and some non-traditional rewards all can be used as motivation. Whether you decide to use a year-end bonus system, a raise, or some extra vacation time, it’s important to recognize employee work with positive reinforcement if it is deserved.

While large organizations often have a traditional style incentive program, small businesses can participate in a reward system as well. Choosing the right compensation reward system for your organization can be an overwhelming endeavor. The implementation of that mechanism doesn’t have to be. Now start planning! 

Watch a demo of Reviewsnap's compensation dashboard modules to get started.

Don't Miss the First Part of Our Series:

How to Grow Part 1: Performance Management in 3... 2...

Compensation Reigns as the King of Job Satisfaction

According to a new SHRM research report, Job Satisfaction and Engagement: The Road to Economic Recovery, employees are citing pay as the top contributor to their overall job satisfaction.

The report flies in the face of a body of research that claims compensation isn’t a significant contributor to job satisfaction. SHRM says that 60 percent of surveyed employees rated compensation/pay as “very important,” while another 36 percent rated it “important.” Just two years

ago, compensation was ranked third among contributors to job satisfaction, eclipsed by job security and opportunities to use skills/abilities.

What’s behind the change? A SHRM representative chalked it up to the recession and the slow growth of incomes over the past several years.

Whatever the reason and whatever its rank, compensation is certainly an essential component of job satisfaction. When employees understand how their achievements are valued and rewarded, their motivation and engagement levels improve. This means it behooves us to continually reinforce their understanding and knowledge of our compensation programs. In fact, we should do more than simply educate employees about our compensation programs: we should take steps to make them active participants in these programs.

For example, employees should be responsible for entering and updating their personal information in our HR systems. Naturally, this would require a bit of training and a system that’s extremely user-friendly—but it’s a small price to pay for raising employee satisfaction, motivation and engagement levels.

The right HR information system/software also offers an array of benefits to our organizations:

·      They streamline the administrative tasks related to compensation management.

·      They improve legal compliance and minimize the risk of errors.

·      They diminish manager bias and improve fairness.

·      They help us collect and maintain more accurate people data, which leads to better decision making.

·      And they enhance our ability to share this data easily with functional heads and senior leaders.

Given the findings of the SHRM report, it’s probably a good time to revisit our compensation programs, practices and systems. It could pay big dividends.

5 Must-Have Features for Your Performance Management Software

Talk about your troubling data …

Asked to describe their confidence levels regarding their own workforce management, employers surveyed by Ventana Research were nearly evenly split: while 51% expressed moderate or high levels of confidence, 49% are only somewhat or not at all confident.

That’s troubling enough but when asked about their workforce management systems:

·      Just 41% said they’re satisfied or very satisfied with their current system.

·      42% are only somewhat satisfied.

·      15% are flat-out unsatisfied.

·      And another 45% indicated they need new applications to improve their workforce productivity and results.

It’s no wonder that talent and performance management software are among today’s most sought after HR solutions. After all, these solutions deliver a powerful set of benefits including greater productivity, stronger employee engagement, better alignment between company strategy and employee performance, and a stronger capacity for conducting sound succession planning.

So, whether you’re in the market to buy new performance management software or you’re simply looking to upgrade your current solution, remember this important (and often overlooked) guideline: don’t compromise ease-of-use just to get the features you want.

Sure, the solution you choose has to offer the right features. No doubt about it. But if the software is difficult to use, your people will avoid it. No amount of training or clever “promotion” can overcome difficult software. In the end, you’ll not only waste your money but you’ll also let down your customers (i.e., your managers and employees at large) and your senior leadership. And you’ll have gone a long way toward losing their trust.

Fortunately, with the array of robust performance management solutions now available, you don’t have to compromise ease-of-use for features. Not if you do your homework properly and research your options online.

However, when it does come time to consider features, certain ones do top the lists of most organizations. In our experience, are five must-have features:

1.     Customizable Performance Review Forms—Cookie-cutter reviews are worthless and a waste of time. The same is true of cookie-cutter software. If a solution doesn’t allow you and your managers to tailor it your needs, move on to another option.

2.     Goal Management Tool—Having the ability to manage and track concrete performance goals is not only wise, it’s an imperative for any company that wants to become truly performance driven. A goal management tool that can be used/accessed throughout the entire year (or performance cycle) helps to maintain strong alignment between employee performance and the company’s goals and targets.

3.     Journal Entry/Notes Tool—This is an especially useful feature—not just for managers but also for their direct reports, as it helps to keep both parties informed and engaged in ongoing communication about goals, action items, areas for improvement, education and developmental matters, etc.

4.     Strong Reporting Function—This makes it easy for managers and HR to run performance reports, conduct proactive succession planning, and share this information efficiently among key personnel, department and functional heads, and senior leaders.

5.     eSignatures and Automated Notifications—These are features that enhance compliance, facilitate administrative actions and maximize convenience—all of which help to ensure that people actually enjoy and utilize your software.

If you’re looking for added value, be sure to explore software that offers these additional features:

1.     360-Degree Feedback Module

2.     A Learning Management System and Learning Content Integration

3.     Compensation Management

4.     A Mobile App

These features are becoming increasingly attractive to organizations that value comprehensive solutions that can be accessed from a wide range of devices and technologies.

Bottom line, you no longer have to sacrifice ease-of-use to get the features you need in your performance management software. Research your options carefully and you’ll make the right choice. Even better—you’ll help your company become significantly more performance-driven.

Even Small Businesses Need Compensation Management

During the early days of a startup, making payroll might seem touch-and-go. You might be able to close deals, but money goes straight back into the business — whether that’s to fund more development or just keep the lights on. Employees in a fresh startup environment know that checks might not come regularly, and amounts might vary. But the sacrifice can be worth it to work on something so new and exciting.

As your company starts to see some stability, though, it’s time to come up with compensation plans for your current and anticipated employees, even if your company is the smallest of the small.

Compensation management for small businesses is just as important as it is for large enterprises. In fact, it can be even more important because things are pretty transparent for small businesses. Here are five things to keep in mind as you develop your small business compensation plan:

·       Check the market rates: People are willing to work for less when it’s something they believe in, and in the early days, that flexibility could help you keep the business going. As you stabilize, employees and prospects will be checking how your plans rate against salaries on Payscale.com or Salary.com. Knowing these rates will be critical when you also need to recruit talent as you grow.

·       Be clear about the whole package: Salary is just one component of compensation, so if you offer additional benefits such as full healthcare coverage or flexible PTO, communicate how that rounds out an employee’s total compensation package.

·       Add non-financial rewards when you can: Especially when money is tight, look into creative ways to reward employees. Small businesses require employees to wear a lot of hats, and the early phases may mean employees work around the clock. Can you give an employee a title boost? How about the ability to work from home?

·       Project what rewards will look like in the future: You don’t have to take standard approach to raises and bonuses, but figure out what you are going to do (so you can budget for it). High performers might deserve a significant boost, but you might also want to give everyone a reward if the business overall is doing well. Identify the options you’ll want managers to have when it is time to reward performance and make sure they’re in line with the values you want to communicate to employees.

·       Answer questions when they come up: You’re not going to be able to predict what will happen in three years — things change really quickly — but answer questions about your plans when they do come up. Be honest and clear. Employees will appreciate open communication and trust the decisions your leadership team is making.

Small businesses can make a big difference in the market, so rewarding employees is important to that success. Develop a comprehensive compensation management plan, and then you can focus on other strategic elements of your business.

Take the Drama Out of Compensation — Strategies for Honest Communication with Employees About Pay

Negotiation strategies indicate that when both sides work together to share information, both parties come out better. When you hide information or believe the other party is hiding something, both sides come out with worse deals than if they had been honest. Yet, it’s in our nature to think we’re leaving something on the table.

 

Then again, just bothering to ask for a raise can get you nowhere (or a knee in the groin). “The Secret Life of an HR Lady”  shows just how painful that compensation conversation can be.

 

Compensation drama makes things more tumultuous in a company culture because people think they’re missing out. Or that decisions aren’t being made fairly. A lot of worry and gossip stems from people trying to fill in the blanks themselves. There will always be people who make compensation discussions dramatic, but you can reduce anxiety by being upfront.

 

Here’s how to communicate honestly with employees about pay:

·      Be upfront when there isn’t money. Employees get more frustrated when you hide the reality of your business than if you had let them know things were tight. It’s tough to hear that the business is going well but that people will have a fourth year of no raises. It’s a mixed message. Is the extra money going to pay off debt? To invest in a different rewards system? Employees can be on your side if you’re not hiding information.

·      Measure performance so you have data to support compensation decisions. If your company is truly implementing pay-for-performance, you are no longer distributing rewards evenly (aka the peanut butter approach). When someone doesn’t get a bonus or raise, you'll have the information to support the decision. You'll also need a plan for developmental steps so that performance can be improved. And if you want to reward a top performer, you'll have the documented justification to request the spend.

·      Deliver on your promises. When you have contracts or agreements that call for bonuses, commissions or raises, you're obligated to deliver. You can add language around performance deliverables or goals, but if you renege on the agreement, employees will find out. They’ll wonder what else you’ll renege on. There might be good reasons for having to back out, but be prepared to have a conversation about why you can’t deliver and about a plan to revisit the obligations in the future.

Employees will gossip; that’s why they call it water-cooler talk. You can still control messages but also share information. Your behavior influences how employees perceive your honesty. Don’t let compensation drama impact your company’s productivity and culture. Strive for transparency, document your decisions, and deliver on your promises.

The Business Impact of Compensation Management

Imagine continuing to manage your personal investment portfolio with equal contributions spread across each account, regardless of its past performance or future potential. If a low-involvement, low rate of return approach fits your investment style, you might just be happy with the resulting meager financial gains.

Most of us expect our money to perform better on our behalf. We diversify our portfolio, search for investments that are trending positively, then monitor our distributions and make course corrections that, over time, reinforce our investment strategy. Those same best practices in money management can also be applied to an organization’s strategy for compensation management.

Compensation in terms of salaries and wages is often the single biggest cost to an employer and, depending on the industry, can be up to 70 percent of a company’s annual operating costs.[1] Yet many companies put this critical investment on autopilot by implementing across-the-board pay increases without taking individual performance into consideration.

With so many organizations focused on controlling costs, getting the most out of compensation budgets means developing a strategy for wise investments in talent. Effective compensation management starts by identifying a pay philosophy and strategy, then evaluating the plan on a regular basis to remain in balance with external market rates.

Once a compensation plan is in place, salary increase budgets can then be allocated to reward individuals for their performance against goals that drive the business, creating a true “pay for performance” culture. But it’s not just high-performing employees who benefit from effective compensation management; the company feels the positive impact from:

·       Higher productivity. When high-performing employees understand the connection between their individual contributions and their pay potential, motivation is created to deliver above-average results.

·       Budget effectiveness. By differentiating salary increases based on individual performance, companies can ensure that their merit budgets generate the greatest ROI.

·       Improved retention. When your strongest players realize that their performance is not only noticed but also fairly rewarded, they’re more likely to be satisfied and will continue to contribute for longer periods of time.

Perhaps some people are comfortable taking a “low involvement, low rate of return” approach to their personal investments. While that may be fine on a personal level, that strategy doesn’t hold up well for business. Invest the time to develop your compensation strategy, then invest in an automated compensation management software solution to ensure that your compensation program delivers a solid, long-term performance.

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[1] Harris, Stacey and Jones, Katherine. Getting Compensation Right: The Value of Compensation Analysis and Planning Tools. Bersin & Associates. April 2011.