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During one of my conversations with the CEO of a start-up, the discussion turned towards Compensation Planning to motivate employees, especially the talented ones. We agreed that the most talented ones need continuous motivation to maintain their momentum. During the discussion, the CEO narrated a bad experience concerning a talented employee, whom he admired, wanted to reward, motivate and compensate appropriately.
Tom, a very talented and diligent employee worked with John, the CEO of the company.. Happy with Tom’s work, John rewarded him with a significant cash award of US $ 1000to motivate him to perform better. John was also making career progression plans for Tom. Both Tom and John seemed happy and thought that they did a good job. Contrary to John’s belief, Tom submitted his resignation in a much shorter span. In his exit interview, Tom did not state any specific reason for his resignation (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 everything he could to ensure it. John was left wondering if there was anything he could have done differently. As I did not know much about the employee, it was inappropriate for me to say anything then. But the question remained in the back of my mind. I believed that the early resignation was due to improper compensation planning and rewards.
In a research paper on ‘Individual Differences in Reward Practices‘, Rick Garlick, Ph.D., Director of Consulting and Strategic Implementation, Maritz Research, outlined what motivates different employees. The paper categorizes employees based on their 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 the way many companies manage their incentive programs. Many times, HR managers assume that what is rewarding to them will be rewarding to others as well, which is generally a false assumption.”
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. The participants’ recognition preferences analysis 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): Awards seekers want incentives that have both monetary and trophy value. These individuals are highly motivated by gift cards and travel awards. They 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 opportunity to mentor other employees, opportunity to work with people outside their own area, or 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, but they highly valued flexible scheduling and meals with their families. Incorporating aspects like healthy eating habits can boost wellness and harmony at home, which resonates significantly with this group’s reward needs. Travel awards and the opportunity to attend conferences were least appealing to this group. They were far more likely to enjoy days off, flexible scheduling, and the 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. They are best rewarded by giving them flexibility which 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 path to accomplishing those goals.
Praise cravers (16%): These individuals value any type of praise verbal, written, formal or informally given by peers more than any other segment. These people have a higher desire to have their work acknowledged, with or without an accompanying award of monetary value. They 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. Thy 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 to work with people outside their own areas.
The research demonstrated that rewards and recognition that mean nothing to the employee is the same as offering nothing at all. Since companies make a significant investment in recognition programs, it is only prudent 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 employee compensation 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 the basis of Maritz Inc.’s research that I discussed in part 1 of the blog series 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.).
- » Compensation should be offered quickly and as soon as possible, before your competition makes a better offer to your employee.
- » Non-monetary compensations is as important as monetary compensation. Rewards like paid days off, 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 provides a collaborative framework to allow full participation of both managers and HR.
Do you think you need a compensation planning tool?
Thank you for the information. It will come in very useful, particularly if you are working on a very tight budget. I believe that a combination of the above and cultural / economic factors will guide decision-making.
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Of course, I am motivated by rewards. But more than that, my motivation is seeing my team perform. It is actually more of self-fulfillment for me.
Natalie Loopbaanadvies
Great article. It’s definitely been proven that a paycheck may not guarantee retention of talent. It will be of great benefit if all the reward strategies above can be explored by Managers to retain talents.
When employees have an adequate or better talent for their jobs they will be engaged in their work provided they are managed well and paid fairly.
Even if we reward an employee with a big bonus we will not increase the employee’s talent and talent is what separates the best from the rest.
If we hire for talent, the job itself is the biggest and best reward. Sharing in profits is always appreciated even by engaged employees.
Hello Gireesh:
When managers use money as a motivator we should not be surprised that their employees will see money as their prime motivator.
Managers have a secret weapon in the war against attrition and it is a word That All Leaders Know — TALK.
“Tom worked with John, the CEO of the company, and was a very talented employee who worked diligently.”
John was fortunate to have such an employee.
“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.”
What led John to believe that Tom would be motivated to perform better?
Perhaps Tom believed he was underpaid and bonus proved it?
Did John discuss with Tom how to perform better?
“He also had lots of plans for Tom in the back of his mind.”
That is a huge management mistake.
John’s “plans in the back his mind” had no way to motivate or influence Tom’s decisions. In fact, a lack of plans may well have demotivated Tom.
“Both Tom and John seemed happy and thought that they did a good job.”
John was not acting as an effective manager of Tom. John assumed too much.
“Contrary to John’s belief Tom submitted his resignation within a much shorter span.”
John’s beliefs were irrelevant to Tom, perhaps?
“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).”
We should not presume that a former employee’s better compensation package was the primary reason for leaving. I am suspect that the reason Tom left was his relationship with John since Tom did not give a specific reason for leaving. Perhaps Tom did not want to burn any bridges?
“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.”
A manager who is stunned when a prized direct report leaves may have done all he could do but he did not do the right things. For instance, the plans in the back of John’s mind had to be shared with Tom long before Tom left.
There is no substitute for talking with direct reports.
Great article … John’s scenerio is one that many leaders can learn from. I think management spends quite a bit of time guessing and/or making assumptions on what motivates individuals instead of getting to know them.
I also agree with Michelle. I think it different forms of compensation such paid time off, or flex time would be just as rewarding, if not more rewarding, than receiving a bonus check. In today’s society quality of life is definately important and what a great way to recognize individuals by giving them a day off with pay.
Again, great article!
Gireesh – Awesome article! I’m a strong proponent of Professor Rick Scholl’s “Five Sources of Motivation Theory”, so I really enjoyed analyzing your article in the context of that theory.
The 5 Sources Theory looks at what motivates individual behaviors at work (ie money, freedom, praise, etc). You touched on the 5 Sources model in the beginning of your article: The employee received a decent sum of money, but it’s apparent that’s not all that motivated him. The Five sources in the model are Intrinsic, Instrumental (money, prizes, etc.), Internal and External Validation (praise and accomplishment), and Goal Identification.
Your article does an awesome job of breaking down the various types of rewards that appeal to instrumentally motivated individuals – bonuses, free time, money, promotions and so on – and touches briefly on external validation through praise and status.
Unfortunately, you ignore people who do things just because they like them (even if they suck at them), people who work hard just to succeed at a challenge (even if no one else finds out about it), and people who do things just to see a company succeed (very common at non-profits).
Most companies put too much stock in instrumental motivational tools as it is, and most people are driven by a combination of sources – including money, but other stuff too.
I think you provide a great list of instrumental motivation tools, but I’d love to see you write another article examining some other motivational drivers. I’ve written about this topic myself over at my blog. (Shameless plug – sorry) You can find them here:
I love your article, and look forward to reading more!
Cheers,
Chris
I recently came accross your blog and have been reading along. I thought I would leave my first
comment. I dont know what to say except that I have enjoyed reading. Nice blog. I will keep visiting this
blog very often.
Betty
I believe that employees are not totally motivated by money and that verbal rewards and recognition go a long way. People like to feel utilized and appreciated to an extent. They want to use their degree, acquired skills and talent to the fullest. If they are unhappy with their positions a bonus or raise is only a short term solution to a permanent issue.
In compensation planning we diligently watch the markets for our area, what our competition is doing, what level the person is coming in at compared to others and the value they bring to the organization overall.
There are a lot of different factors to be considered in compensation planning and I think your blog points a lot of those out accurately.
Some good examples are Paid Time Off, Holiday Pay,Flex Time, Casual Work Environment, Tuition Reimbursement and Health and Fitness Reimbursement.
Great article on why managers need to personalize motivation so that it powerful for each individual employee.
Another great resource for motivation is