Archimedes
was quoted as saying, “Give me a lever and I can move the world.” I am
sure that he was probably referring to the world of total rewards and
compensation. Properly leveraging total rewards is a delicate act. You
must use the right instruments and amounts. An even more difficult
aspect is determining the optimal balance point. Often, more depends on
perception than actual differentiation.
We’ll start with the obvious. Cash is great. Let’s face it, we could
all use more of it and would be happy if someone gave it to us.
Unfortunately, every company has a limited amount of cash to spread
around. Even in the best years companies do not have an endless supply
of money. In our current era where 3% is considered a good merit
increase and broad-based LTI incentives seem to be losing ground, we all
need to find better ways to stay competitive in the battle for talent.
You may be able to find more value in non-cash compensation
instruments, if you are willing to build their cachet before you start
giving them to employees.
Luckily, cachet can be more important than cash. With proper planning
and communication you can create a cachet for nearly any compensation
or reward element. Without building this critical perception element,
it’s difficult to get true value out of any non-cash component of a pay
package.
Recognition and reward programs of the kind often discussed by Derek Irvine
at this blog, are very useful tools for communicating “social status”
at a company. Unfortunately, these instruments cannot always be
appropriately sized for higher-paid staff members. And, these programs
do not help if there are already issues with keeping your staff at
competitive total compensation levels. When common recognition programs
won’t work and merit increases no longer catch employees’ attention,
what should you do?
Instead of offering differentiated merit increases, I have seen
companies offering flatter raises to everyone. They then boost the total
compensation of high-performing staff members by granting awards from
well-communicated “special” LTI programs. These programs are
communicated long in advance of awards being given. The goal is to build
a perception of a unique status that is similar to that held by job
titles in certain organizations. Unlike inflationary job titles that are
hard to take away and can result in more costs that planned (read Chuck
Czimar’s great post), special awards are just that…special.
These awards can be given for meeting pre-specified criteria or they
might be given based on unplanned discretion or links to other
performance factors. The trick is communicating the cachet of the
program in advance. It must be clear that the program is for the “above
and beyond.” If the awards are given in equity, they may result in the
same, or less, total compensation accounting expense as cash. That
expense can be spread across multiple years. In effect, you are giving
the same amount, or more, to the employees, but it can cost your company
less.
Like anything in the world of compensation these types of programs
must be designed, communicated and administered carefully. But, if you
need to move the world when nothing else will, they just might provide
the lever you need. Cachet, instead of cash, may be the best solution to
Archimedes dilemma.
Dan Walter is the President and CEO of Performensation
an independent compensation consultant focused on the needs of small
and mid-sized public and private companies. Dan’s unique perspective and
expertise includes equity compensation, executive compensation,
performance-based pay and talent management issues. Dan is a co-author
of “The Decision Makers Guide to Equity Compensation”, “If I’d Only Know That”, “GEOnomics 2011” and “Equity Alternatives.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts,
a free networking group. Dan is frequently requested as a dynamic and
humorous speaker covering compensation and motivation topics. Connect
with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay