GE has been making managerial news lately as they begin their shift away from annual raises much like they shifted away from annual performance reviews. It got me thinking about my compensation preferences, and the many discussions I’ve had with coworkers over the years about the same. In every company I’ve worked for I’ve had a conversation with my employer about trading pay for extra time off. This rarely jibed with the vacation policy of my employer and required comprehensive questioning. If I work overtime, can I bank it as PTO instead of getting paid extra? Can I get some overtime pay and some PTO? Can I take leave without pay? All yes/no questions that are anything but simple to answer.
People are motivated by money inasmuch as it acts as a proxy for fulfilling basic needs. Dan Pink pointed this out in his book Drive and stated simply that people should be paid enough to take the issue of money off the table. That’s probably a bit more than basic needs for most people in modern society. They also want compensation that allows them to do the things they find important in life. That might be to build shelter for low-income families, to sail around the world, or to pick up a new book every week to read over the weekend. Once needs are met, money doesn’t act much as a motivator. In fact, it can become a demotivator.
The annual raise - dancing with two left feet
We see the demotivating effects of money during annual salary adjustments, a ritual dreaded by both employer and employee. Annual salary adjustments along with annual performance reviews are, as Erik Weber puts it, antiquated practices not fit for today’s organizations. If your salary is adjusted annually, think back to the last year. How happy were you with the adjustment? What influence did you have over setting your new salary? How connected did the change feel to the work that you perform? If these questions left you feeling a little low, you’re not alone. Employers tend to stick to a formula including things like rank, longevity, annual performance, and variance from market pay. Feels really tied to your accomplishments, doesn’t it?
As much as employees are often left disappointed following an annual salary adjustment, employers bear their fair share of anguish. If you can’t at least provide annually a raise that meets cost of living changes you’re going to disappoint your workers. This is table stakes, folks. This goes beyond corporate budgeting for raises and doling them out
fairly evenly independent of an employee’s contributions. That is likely to disengage your staff quickly as they all discuss what poor raises they got for the year after receiving glowing annual performance reviews. Sounds like the kind of thing any manager would be excited to get to work on!
Beyond annual pay
When rewards are temporally related to the actions taken they are much more impactful. For pay, this could mean more frequent adjustments of salary. If an employee develops a new level of competence related to their job which can yield a valuable return for the business, why not reward them immediately with an increase in pay? Note: these aren’t bonuses awarded for singular achievement or company milestones (Erik has something to say about bonuses too), these are true salary adjustments reflective of changes with long-term benefits for the organization. This signals to the employee they are moving in the right direction, that they don’t need a new job title to increase their value, and their efforts are worthwhile to the organization.
While the frequency of rewards is just one part of the equation, pay only goes so far. What might people really want? Ask them. Some want flexibility of time to meet their work and personal goals. Others might want the chance to do something outrageous in pursuit of the group’s mission. Acknowledge and reward them for that even if they fail. Regardless of what you try, check the pulse of your team and be ready to try something else. No matter the specific incentives a person may be swayed by, we all want the same thing at the core - to be compensated fairly and appropriately for the value we bring to our organizations.
The transition away from annual salary adjustments as the primary means to compensate people in ways that matter to them and let people know they are valued does not have to be drastic or costly. Kudo cards can be great starters to increasing feedback cycles which combined with merit money offer simple team-based rewards. I also suggest experimenting with experiential rewards over financial ones for the memory that becomes associated with them. The journey isn’t simple, but the rewards of a happy, engaged and retained workforce are worth the effort.