Do your rewards motivate or else!

December 4th, 2008 Gireesh Sharma Posted in Compensation Planning, Employee Rewards, Motivation |

During one of my conversation with a CEO of a start-up company the discussion turned towards Compensation Planning to motivate employees, especially the talented ones. It was agreed that the most talented ones need a continuous motivation to maintain their momentum. During the discussion, the CEO narrated one of his bad experiences about one of his talented employees, whom he admired, wanted to reward, motivate and compensate appropriately.

Tom worked with John, the CEO of the company, and was a very talented employee who worked diligently. John being happy with the Tom’s work, rewarded him with a cash prize of $ 1000 (which was a significant amount ), in anticipation that Tom will be motivated to perform better. He also had lots of plans for Tom in the back of his mind. Both Tom and John seemed happy and thought that they did a good job.

Contrary to John’s belief Tom submitted his resignation within a much shorter span. During his exit interview, Tom did not state any specific reason for his resignation too (although, it was found later that he left for a better compensation package). His resignation came as a shock to John, who was genuinely interested in retaining good employees and did all what he could do to ensure it.

‘Where was the mistake?’, questioned the CEO to himself and to me too.

As I did not know much about the employee, it was inappropriate for me to come to any conclusion. But the question always remained behind the back of my mind. I always believed that it had something to do with appropriate compensation planning and rewards.

Here is a relevant a research paper by Rick Garlick, Ph.D., Director of Consulting and Strategic Implementation, Maritz Research titled ‘Individual Differences in Reward Practices‘.

The objective of this research was to find out what motivates different employees and to define some general categories of employees with specific reward or compensation aspirations. Here is an abstract of the research.

While everyone understands intuitively that we are not all motivated equally by the same rewards, you might not know it by the way many companies manage their incentive programs. Many times, human resource managers assume that what is rewarding to them will be rewarding to others as well, which may be a false presumption.

As Maritz Inc. was interested in understanding how the workforce is segmented on its reward preferences, it conducted an online Maritz® Poll of 1,003 North Americans. An analysis of participants’ recognition preferences identified six distinct reward profiles, along with some of the more common characteristics of people that were most likely to fall within each ‘reward’ segment.

Reward Profiles

Awards Seekers (22% of the general population, rounded to the nearest whole number): Awards Seekers want incentives that have both monetary and trophy value. These individuals are highly motivated by gift cards and travel awards. Awards Seekers also place higher value than most others on status awards. They are far less motivated by things that might take time away from their normal routines such as the opportunity to mentor other employees, the opportunity to work with people outside their own area, or the opportunity to take on particularly challenging new projects.

Nesters (20%): This group was defined by what they found de-motivating as much as anything else. Nesters were turned off by incentives that took them away from home. Travel awards and the opportunity to attend conferences were least appealing to this group. Nesters were far more likely to enjoy days off, flexible scheduling, and a reward of a meal with their family than those in the other segments.

Bottom Liners (19%): In many ways, Bottom Liners resemble Awards Seekers in that they are extrinsically motivated. The difference between the two is that Bottom Liners have less concern about trophy or award value and are really only concerned about the monetary value of rewards. This group places the highest importance on receiving a cash bonus. They also value awards, such as ‘point programs’ that they can accumulate. They place very little emphasis on receiving direct praise or recognition in any form. This group had the highest proportion of females (59%).

Freedom Yearners (17%): Freedom Yearners are less materially motivated, with limited interest in things like gift cards and cumulative award programs. Freedom Yearners are best rewarded by giving them flexibility. This includes offering flexible hours, the freedom to choose how to best achieve their goals and the ability to choose interesting and challenging projects. Freedom Yearners are intrinsically motivated and work best when simply left alone. Define the outcomes you want them to achieve, but allow them to find their own best path to accomplishing their goals.

Praise Cravers (16%): These individuals value any type of praise more than any other segment. This praise may be given verbally, written, formal or informally given by peers. These people have a higher desire to have their work acknowledged, with or without an accompanying award of monetary value. These people also have the least interest in taking days off or flexible scheduling, suggesting that they achieve a great deal of personal significance from a job well done at work that is recognized accordingly.

Upward Movers (8%): Upward Movers are undoubtedly the most satisfied and committed among all of the employee segments. They are the least interested in cash bonuses, days off and flexible scheduling. These people love their jobs and want to move up within their companies. Among all of the segments, this group places the highest importance on status awards, the opportunity to mentor other employees, and the opportunity to work with people outside their own areas.

The research demonstrated that meaningless rewards and recognition is about the same as nothing at all. Since companies make a significant investment in recognition programs, it behooves them to gain as complete understanding of their employee populations as possible to facilitate the best results for their investments. Segmenting employees based on reward/recognition profiling and targeting to specific preferences is a way to make sure that their time, money and effort is wisely spent.

Defining appropriate compensation to employees is one of the most important tasks of an HR Manager and the management team because it plays a critical role in retaining talented employees. On basis of the above research and other observations the following points are important while planning employee compensation:

• Compensation offered should fit the reward profile of the employee. To ensure this, manager of the employee should be consulted (because he is the most appropriate person who knows about the preference of the employee) and made a partner in the Compensation Planning.
• Compensation should be offered quickly and as soon as possible, much before your competition offers a better compensation to your Talented Employee.
• Non-monetary compensations plays as important role as a monetary compensation. Rewards like paid offs, paid vacations, free meals energizes employees more than a packet of dollars.

Most organizations that want to excel in their domains and aspire to become market leaders, use Compensation Planning tools. A compensation planning tool involves line managers in helping decide increments for their juniors, allows setup of rules by the HR (compensation planners) to define the increment bands, bonus criteria etc., encourages real time feedback to managers and a collaborative framework to allow full participation of both managers and HR to take decisions about the increments,integrate with appraisal scores, employee attendance, training, and other employee related issues which may impact performance pay and provides management reports & a tool for on-line analysis of financial impact.

Do you think you need a compensation planning tool?