Few issues in the domain of business are thornier, more complex, and emotion-packed than that of how much money to pay someone for the work they do. Employee compensation thrusts its tendrils into considerations no less substantial than motivation, employment law, labor unions, production, and the very profitability of the enterprise. Oh, yeah. That.
Corresponding almost exactly with the arc of the Great Recession, we’ve been blinded of late by arguments put forth, like shiny objects, suggesting that the paper stuff that goes in your pocket (cash compensation) isn’t as important as the cornucopia of less extrinsic factors that have entered the deal in the workplace… things like concierge-type services, telecommuting, or participating in Habitat for Humanity builds alongside your co-workers.
Whoa, full flaps, brakes, stop! To be sure, there is considerable attraction and motivational impact in achieving a state of camaraderie, and in job-related perks that are special. Indeed, one of us helped launch FedEx, and for a while when the business was running on fumes, it certainly helped to be working alongside a charismatic CEO with a warrior spirit, to be a participant in reshaping commerce, and for every employee to have the opportunity to ride free on company planes, because the mixture of cold, hard cash was pretty lean.
But at the end of the day, people, nearly all of us are motivated, at some level and to a significant degree, by money. We are. Aren’t you? Sure, it’s not everything, but it’s definitely in the mix. And it’s more in the mix of late for two reasons:
1. Due to a still struggling economy and a slack labor market, real hourly earnings are mired US$0.24 below the December 2008 high.
2. Employee engagement levels are abysmally low, to wit the deal in the workplace tends to be more transactional, where cash is the coin of the realm.
So chewy and multidimensional is the comp issue that an entire professional association, WorldAtWork (formerly known as the American Compensation Association), exists to help employers figure it all out.
Credible studies abound, suggesting that higher compensation won’t necessarily buy you a better performing organization. In chapter 5 of our latest book, Contented Cows STILL Give Better Milk, we illustrate that with some NFL stats showing that many of the highest paid football teams in the US consistently turn in some pretty middling results.
Still, most of us don’t lead entire organizations; we lead individuals. And taken one person at a time, let’s be clear. Sometimes it IS about the money.
It’s sometimes about the money, because people who are struggling to make ends meet, or who believe they can earn substantially more somewhere else, or who feel taken for granted spend more time thinking about their comp-related woes than they do thinking about their work, their customers, and your business. When that happens, they can’t possibly be as engaged as you need them to be.
It’s sometimes about the money because, let’s face it: right or wrong, in our society, money sends a message. A message about a person’s worth. One’s composite view of his or her “deal” at work consists of at least these four factors:
- Leadership: How do I feel about the person I report to, and the big guns who run the place?
- Meaningful work: Is what I do valuable and important to others, and do I get frequent reminders of that? Expressed appreciation is a HUGE part of this one.
- Lifestyle fit: Does this job support and promote the kind of life I want to live? Schedule, benefits, amenities, time demands, etc.
- Compensation “Worth-its”: Am I satisfied with the money I earn?
You’ll notice that the above list is heavily weighted in favor of intangibles. Only one factor – the last one – is tangible. Most of us would like to maximize the mix of these elements, but they don’t all have to be perfect. If I really like my boss, and the work provides a real sense of meaning to me, I may be willing to work long and inconvenient hours for less than optimal pay. But if I have to work for a jerk doing stuff that doesn’t provide much emotional satisfaction, you’d better be prepared to fork over the big bucks, or I’m outta here. Mentally if not physically.
Think about your competition for talent. Someone else can always outbid you on the tangible; not necessarily on the intangibles.
Here’s our position, and some tips to go along with it:
- You should never pay anyone more than you can afford, or more than they’ve earned. And not substantially more than the market dictates.
- Without violating anything in the above bullet point, make your very best offer to attract and retain the best people for your organization, and keep them interested.
- The question of whether or not you can afford a certain amount for a certain person must be balanced with the question, “Can we afford not to pay that certain amount?” Consider the cost both if the person were to leave, and if they were to power back. If you really are underpaying someone, do you really expect to get their best work?
- Stay educated on what the market demands. Take advantage of current salary survey data for your industry. Your professional association probably has some. Be sure to filter for geography, profession, education and most of all, demonstrated capability.
- You can offset the desire for more monetary compensation – to a fairly substantial degree – by paying lots of attention to the intangibles mentioned above. Especially appreciation. Simply saying “thank you” – and meaning it – can go a long, long way. It’s worth real money. But be careful about using these intangibles to justify paying less than you can, and less than you should.
- Apart from paying “stay bonuses” or step increases, never increase anyone’s base compensation simply for hanging around another year. If given a choice, your compensation dollars would be much better spent as merit-based differentiation than endurance pay.
- Paying people by the hour is intellectually bankrupt. Find a way to correlate people’s pay with the income or value they provide to the organization.
- Give everyone as much information and control as possible over how much they earn. Here’s a conversation we love to hear (and have): “You want to make more money? Let me show you how.”
Until next payday, wishing you the best!