Lacey Halpern also contributed to this article.
Over the past few years, it has not been an unusual practice for businesses to freeze wages. Based on the economic climate, employees have not been surprised; and, many would much rather have their wages frozen or even decreased than lose their jobs. As businesses see some indications of economic recovery and business profitability, employers will likely be reevaluating their compensation practices. If reinstating raises, employers must determine when and how increases will be awarded.
One solution is to set aside a specific portion of the budget for “A players”/high performing employees in order to reward those who provide the highest value and contribution to the organization. In this scenario, high achievers are rewarded more than employees that are just getting by, and those employees that do not demonstrate outstanding achievements receive no increases.
For example, employee-A produces twice as much or twice the quality of work as employee-B, so when the time comes for a raise and the budget allows $6,000 to spend, an employer may choose to award employee-A a $4,000 increase and employee-B a $2,000 increase. This is a sound way to send the message that all employees matter, but that the level of contribution is a core value to the company. Another option could be to award the budget for increases to only top performing employees, and give the $6,000 increase only to employee-A.
Employers can get creative with their reward and pay for performance practices. Profit sharing, bonuses, and commission are not the only ways to reward employees. Extra paid time off or shorter hours during slow seasons could motivate your employees as much as a bonus check. Empowering employees to select top performers among their peers can also provide peer-based pay for performance. Xenium has instituted an internal program called the, “On the Spot Bonus” where a Xenium employee can select any coworker for a special reward of $50 cash, with each employee having the ability to thank any of their coworkers up to twice per year. This program empowers employees to reward their peers on the spot, creating an environment that doesn’t leave the selection process only up to management. Get creative as you create a system that will work for your team.
According to Ken Abosch, compensation practice leader at Aon Hewitt, high performers are attracted to companies that are committed to pay for performance, whereas low performers will self-select out of these organizations. He cited some of the main challenges of implementing effective pay for performance as:
- Insufficient funding.
- Faulty goal setting, with no clear definition of performance.
- Unrealistic employee reward expectations.
- Poor modeling by executives.
- The mindset that “everyone here is a high performer or they wouldn’t be here.”
Organizations that have the intent to pay for performance risk losing their “A Players” if they do not follow through on their promises. Likewise, if there is no clear process for defining and measuring employee contributions against business objectives (i.e. Are we winning or losing?), a sense of entitlement or apathy can occur. Consistency and clarity are central to maintaining a pay for performance model that will inspire employees to achieve and maintain peak performance. A strong system will inspire employees and motivate them to help grow the business, which is vital as the economy begins to rebound.
It is vital too that your organization take the time to evaluate compensation and to prudently address raises amongst your team. Work with your Xenium Human Resource Business Partner to develop and maintain a system that will motivate your team to succeed.
Sources: SHRM