Human Resources: It’s Time to Pay Up. And Fast. A Forecast on the Future of Rewards & Recognition

By: Marc Drizin

The nation is in an economic downturn that experts believe will be with us for the next few years, if not longer. No matter the industry or the region in the country, more and more companies are being forced to do more with less. Consumers are buying fewer products and services and putting off non-essential purchases into the future. Capital expenditures by businesses are being reined in and in some cases, cut altogether. Every expense is being scrutinized because savings go right to the bottom line. Organizations are changing their business strategies to align to the new marketplace realities. In the “old days” when customers requested “better, cheaper and faster,” companies would respond with “pick two.” Today it’s a business requirement for these same companies to accomplish all three.

There has been an unexpected positive consequence of these new realities: a greater number of business leaders outside of human resources better understand that customers buy products from companies but form relationships with people. And it’s these same people (the employees) who have the ability to create and enhance the kind of customer loyalty and retention required for survival in today’s rocky economic times. Most CEOs understand how the Pareto Principal relates to their bottom line; 80% of sales come from 20% of the customers. More of these same senior leaders realize a new truth: 80% of business outcomes can be directly traced to the efforts of 20% of the employees. These “A & B players” and “High Performers” are being counted on more than ever to meet and exceed customer expectations.

Narrowing the Focus
The ultimate goal of reward and recognition approaches is to find, keep and motivate employees through a variety of organizational interventions. These can include tangible and intangible rewards, cash compensation, benefits, recognition approaches and employee involvement and motivation strategies. But when it comes to allocating resources to fund these rewards programs in 2009, companies need to narrow the focus while at the same time expanding the scope of recognition.

All employees want to be rewarded for their performance, no matter how much, or how little they actually contribute to the success of their organization. But “C” players (who can make up as much as 75% of the employee base) often do acceptable or minimally expectable work and are often happy to have and keep their job, let alone receive additional rewards. Pay-for-performance requires companies to differentiate between their superstars and their under-performers. And based on recent national research on employee satisfaction, engagement and retention, most companies have a long way to go.

According to the 2008-09 Employee Hold’em National Workforce Engagement Assessment Benchmark, 50% of self-identified “Superstar” employees are Fully Engaged with their organization. These hard working employees are ready, willing and able to go above and beyond customer requirements and plan to stay with the company if they’re offered a little more money to go somewhere else. Why? Because they are more likely to believe they are fairly rewarded and recognized for their contributions to the company’s success, feel that excellent performance gets rewarded in their organization, and believe their manager ensures the best employees receive the greatest rewards. Another study recently conducted by Leadership IQ indicated that 47% of High Performers are actively looking for new jobs by posting and submitting their resumes and even going on job interviews. Companies need to “pay up” with alternative forms of rewards and recognition.

Finding Alternatives
Employers cannot afford to lose their best workers, who get the job done on time, on target, and on budget. The best workers are given the toughest assignments because they have shown an ability to get the job done. They work on the hardest accounts due to their abilities in handling difficult clients. And they’re often asked to “learn on the job” due to their ability to swim, while others sink. How do most companies reward these vital resources, these assets with feet? By giving them a performance increase that is only 2 or 3% bigger than the marginal employee sitting in the cubicle next to them received. Seniority pay, merit pay, incentive pay, team-based pay, skill-based pay and outcomes-oriented pay just don’t cut it, especially when companies can barely afford their cost of living increases.

That’s why more and more companies are looking at alternatives to compensation and spot bonuses to reward their best and most dependable workers. Providing training and development, work-life balance, and opportunities for advancement are three of the effective rewards for today’s hardest working employees.

Train the best employees so they can leave, or else they’ll leave. That’s right. Train the employees so they can leave, or else they’ll leave. They’re going to leave anyway. The average employee has thirteen to fifteen jobs over the course of their career, seven by the time they are thirty years of age. However, when companies provide training and development opportunities on a consistent basis, these superstars will stay longer, work harder and recommend the organization as a great place to work. And aren’t those exactly the kinds of behaviors that a pay-for-performance system is supposed to elicit from top employees?

Whether it’s a result of the expectations of their managers or the demands they put on themselves, high performers in an organization know through experience that they won’t be working only 40 hours in a week. They show up when they are needed, and stay until the job is completed. They’re willing to give up some personal time in order to satisfy the needs of the job. But they expect payback as well. Managers that want to keep their top performers retained and engaged need to recognize the importance of their personal and family life and be flexible when the pendulum swings to the family side of the equation. Managers need to ensure that top performers are given the freedom to balance work and family responsibilities without hindering their career progression. And they need to be sensitive to the needs and problems of these employees when they arise.

Employees want the ability to “move up, move over, or they’re going to move out”. Many front line supervisors and managers are reticent to let their best employees transfer to another division or department. The reason is understandable; the supervisor’s performance review (and pay) is often based on the productivity or throughput of their direct reports. More and more companies are training their supervisors to be “engagement agents” for these top performers, providing career mentors throughout their employment. In the past, companies have pigeon-holed their best employees into the job they were “hired to do.” When half of these workers are open to job offers from other companies, or actively looking for them, this practice has to end. It’s time to pay up. And fast.

Expanding the Scope
And finally, a few words about expanding the scope of recognition. Most companies think about “recognition” in terms of the anniversary card hand-signed and delivered by the senior executive, the “five-year pin” given out at the annual awards luncheon, or the gift catalogue the 10-year employee chooses from as acknowledgment of their continued tenure. These are worthwhile endeavors that all employees share in, even the three-quarters who are “C” players in the typical organization.

So, how are the best companies taking this one step further? They’re doing it by recognizing the importance of Daily Satisfaction and Ethics, Diversity & Safety. Companies who understand that employees quit a boss and not a company are working hard to ensure that employees have a good relationship with their immediate supervisor. They’re attracting talent by making certain there is a good fit between the applicant’s skills and interests and their job. And they are making sure that each job provides a feeling of personal accomplishment.

Today, companies better understand the critical nature of ensuring an ethical environment for their workers. Employees are less willing to cut ethical corners for short-term profits or modest improvements in a company’s stock price. They are less willing to look the other way regarding issues of favoritism or unfair treatment of employees. And today providing a safe and secure workplace is no longer a “nice to have,” but is more like a standard table stake in poker. Employees understand that although compliance and ethics may lead you to the same place, compliance is based on things you have to do, while ethics are things you want to do. The difference in verb makes all the difference in the world.

2009 is a difficult year for an increasing number of businesses. Decreasing revenues, shrinking profits, pressure from shareholders and competition from new and emerging markets are testing the mettle of even the most solid companies. Companies must continue to narrow the focus of their rewards program to target the employees they count on most while expanding them beyond the typical merit-pay and spot bonus programs many used to rely on. And by recognizing the importance of daily satisfaction and ethics to all employees, companies can improve the performance of all employees.

It’s the old Fram Oil Filter commercial with a twist: “Pay me now or pay up later.”

You make the choice… or your employees will make it for you.

Marc Drizin is founder and chief instigator of Employee Hold’em, which provides talent-retention solutions and corporate training services. He is the author of Workforce Engagement: Strategies to Attract, Motivate, and Retain Talent a second book, Workforce Engagement Fundamentals: A Guide for Managers and Supervisors, and a third book on Rewards & Recognition scheduled to be released in September of 2009. Marc also writes a daily blog that can be found at www.firefasthireslow.com.