Rubino, who is founder and president of Rubino Consulting Services in Pound Ridge, New York, offered his suggestions at the 64th SHRM Annual Conference and Exhibition, held recently in Atlanta, Georgia.
Rubino asked his audience of HR managers how many of them had merit increase base salary systems. Most hands went up. Then he asked, How many are thrilled with the results? No hands went up.
Of course, Rubino says, cash isn't the only motivator; employees are also motivated by work/life balance, development opportunities, and so on. But first, you have to get your cash pay program working. It’s the basis of your total rewards program.
Pretending to Pay for Performance
Many companies are only pretending to pay for performance, Rubino says. With a 2% or 3% budget for merit increases, you're not motivating anyone except the CFO.
To make matters worse, you are pitting employees against each other, and you're suffering from the compounding effects of base pay increases.
(Rubino notes that Einstein said compounding is the most powerful force in the universe.)
Think about what you are doing with your merit increases, says Rubino. You are telling a good employee that he or she did great work. Then you're offering a 3 or 4 percent increase, over 25 bi-weekly payments, that's heavily taxed. It’s just not very motivating, he says.
What’s the better approach? Reward those who perform well with larger, lumpsum payments.
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Another important factor, says Rubino, is being sure that your pay system is in alignment with your corporate goals and philosophy. Typical of what Rubino sees is a situation in which the whole corporate emphasis is on the team. It’s all about teamwork. And then there’s a merit pay system that rewards individuals. That’s disalignment, and your best and brightest won’t tolerate it, he says. Soon enough you’ll be left with those mediocre employees who can’t leave.
Most merit systems depend on the matrix that compares position in range with performance level. But what happens when many employees are excellent and are low in the range? Sorry, manager, you have to decide which ones are more excellent than the others.
And then there’s the very valuable employee who’s at the top of the range. Sorry, Joe, no raise for you in spite of your excellent performance.
The matrix just doesn’t work to motivate employees, Rubino says.
What about profit-sharing as an incentive? It’s not an incentive plan, Rubino says. There’s no line of sight for employees. They can’t see how their individual contribution makes a difference. Same with equity plans, he says. No line of sight. It may be a good way to introduce pay for performance to the organization, however.
Here are Rubino's ten criteria for success with Pay for Performance.
1. A Successful Plan Is Aligned With Organizational Culture/Values
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2. A Successful Plan Is Fair to Employees
3. A Successful Plan Is Fair to the Organization
In tomorrow’s Advisor, the rest of Rubino’s tips, plus an introduction to a new, reasonably priced, total training resource.
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