Maybe it’s too soon to look backward and really gain insight into how the recession has changed our pay programs and the way employees see them. The perspective may be wrong; perhaps the whole picture will come into view much later. But just maybe there are already lessons we can learn.
Only 3 years ago, “Help Wanted” was a common phrase in many industries. Pay continued to climb, and benefits seemed like an entitlement. Now that employees are easy to find and happy just to have a job, it might seem like a good time to snap up some bargains.
But Christine Tande, CCP, of Tandehill Human Capital, says there are different lessons she hopes people will learn. At the same time, she acknowledges that hope and reality are often different. “There is what you wish for, and there is what actually happens,” she says. “There are a couple of things that I hope will be sustained, but it’s too early to tell.”
The building is burning, and a window has opened for a brief moment. Whether you will take advantage of it is up to you. Here are the four lessons and opportunities in compensation Tande hopes you will take away as the situation improves.
The entitlement perception versus pay for performance. The recession gave employees a different perspective on their jobs. In the white collar, mid- to large-sized employer environment in which Tande consults, she says people have come to expect their income and standard of living to increase year over year—always. But with the recession, as salaries have stayed stagnant (at best), that is changing.
“Salary increase budgets have pretty much stayed the same now for a couple of years,” she explains. “There are longer periods between increases, lower bonus pools or no bonus pools, longer times between promotions.
“Recently people have just been happy to have a job, so they are not necessarily expecting that they will improve their standard of living right now. If something positive could come from that, from my perspective, it would be that all the reductions—the layoffs, the takeaways, the high unemployment—would make a dent in the entitlement mentality.”
Tande continues, “We talk a lot about pay for performance, but in general, we don’t connect people to the idea that you get out of it what you put into it. When the company has a great year, employees expect more pay. But they don’t really want to take the hit when the company does less. ‘If we don’t do so well, that was the economy or poor product. It wasn’t really my fault, so I should still get mine.’ That mentality starts at the top and trickles down.”
Right now, employees don’t necessarily expect an increase, providing an opportunity to start anew, Tande says. “This economy is an opportunity to think differently about pay for performance. If ‘pay’ is the cost piece, and ‘performance’ is the investment piece, we need to make sure we link them a little tighter. Define what performance is, and manage the pay piece to more directly link it to performance that actually matters to the bottom line of the company. Pay out in a way that will help the company to improve the return on their human capital investment.”
How? “Of course, if you have a great performer, give them the 4 percent increase, the bigger bonus, put them on the promotion list, let them attend seminars,” Tande says. But maybe you should take a more sweeping look at your employees and identify those who stand out in a different way.
“What if we do better in identifying different kinds of performance? Some people might be very good at delivering results. They might not do it in the nicest possible way, but they deliver. Other people are good, steady performers, who are reliable when they are there, but they leave at 5:00. When they are there, they contribute to the overall culture and productivity of the unit; they can be relied upon; they are not always banging on your door asking for a raise; they are just happy to do their job.
“There are many different kinds of performance,” Tande continues. “If you start looking at these categories differently, that would be one way you can better manage that ‘cost’ piece, combining it with the motivational, human capital piece of pay for performance.”
Deemphasize base pay; emphasize variable pay. If there is only a small amount of money available for salary increases, Tande suggests granting more meaningful amounts to a smaller group of people, rather than very small increases across the board. Even better, use it as variable pay. “Bonuses might not be big, but they might be a way to recognize the individuals who have stretched themselves particularly during the last performance period.
“You retain flexibility, because it’s a one-time payment—you may not be able to pay it out next time, but you can do it now. If someone worked 80 hours a week to deliver a project on time and on budget, you can reward them without increasing base pay for something that may or may not happen again.”
Use pay to communicate. “Every time you pay somebody a dollar that they didn’t get before, you’re communicating something,” Tande says. “If you’re paying them less than everybody else, you’re communicating one message. If you’re paying them more, you’re communicating another. So get better at using each and every dollar, especially the fixed-cost dollars, by focusing them on performance, whether that’s individual, group, team, or a combination.
“But deliver the money with a message. You have a time right now where people understand they may or may not get an increase—you have their attention. So next time you pay out a bonus, don’t just send it out and hope they will understand what it’s for.
“Our culture has a very short memory,” she continues. “But we have a window open for the first time right now as companies are struggling. And this is when we have the time to link pay and performance. So the first time companies can really deliver an increase or a bonus again is that next communication opportunity. If they miss that window, they are not going to get it back again until we have another big downturn. I hope they will take it.”
Get the house in order. A few years ago, it was understood that Baby Boomers would soon be leaving the workforce. That will still happen, says Tande, but the timeline has been pushed out a few years.
“That makes this the perfect time,” she says “to get your house in order. If you’re going to change your compensation program, not only do you have that window of opportunity, there is also less pressure on your recruiting function so you have time to make the changes. Some companies are saying that employees are easy to find, so why should they worry. I advise getting things in order now, or you’re going to fall behind. This is the time to prepare.”
How we want things and how they happen are often different. “But my hope would be that companies continue to think more carefully about how to spend their compensation dollars,” Tande says. “Blend together all the sexy theories around paying for performance, motivation, and driving behavior with compensation. Bring them together and be a little more discriminating in how you spend your money.”