Over a 40-year period, three different people conducted three independent studies; the results were the same.
When they asked managers: "What do you think employees want from their jobs?" the managers answered, "Good wages."
When they asked employees: "What do you want from your job?" the answer was: "Appreciation for work done."1
After a salary increase, how long is an employee motivated to do more work? Maybe until the next paycheck. Do we work harder or do a better job if we receive more money? Probably not. Most employees want to do a good job because of their pride.
Frederick Herzberg, a well-known behavioral scientist, differentiated motivational and maintenance factors in the workplace. He found that if motivational factors are not being met, employees will become dissatisfied with maintenance factors-including money.2
job security.
Step back and listen to your employee complaints. Are they complaining about the maintenance factors, which are masking their real concerns with motivational factors?
Companies and organizations must pay attention to both factors before designing effective compensation and recognition programs. Too often, an organization will spend so much time on maintenance factors that it misses the whole point of providing meaningful work and recognition to its employees. On the other hand, if meaningful work is provided and pay is not commensurate with the marketplace, this will give the message to an employee that you undervalue his or her contributions.
Elements of Compensation
There are six main elements to designing an effective compensation program: job descriptions, salary grades, comparison of salary grades and actual salaries to the marketplace and within the company, merit increase guidelines with a performance appraisal system, bonus structures as deemed necessary for the type of job and consistent with the marketplace, and meaningful recognition programs.
Job descriptions. Each job should have a description with a list of duties and necessary skills and knowledge to do the job. The job description should be long enough to be a tool for performance evaluation and training, but shouldn't be so detailed that it becomes obsolete as soon as it is written or burdensome to update. The skills and knowledge section can be used as hiring qualifications.
Employees are great resources for writing job descriptions. They are doing the jobs and certainly have a good understanding of what the duties include.
Salary grades. Each job has a range of dollar worth to the company and in the marketplace. Pay less experienced employees toward the lower part of the range and those who are most experienced and performing at a high level toward the higher end. The middle is the marketplace average for a proven performer.
A salary range helps managers differentiate pay based on performance and experience. It helps companies avoid underpaying or overpaying for a job. Employees need to know that there is the potential of salary growth in the job, but there is also a cap for the job pay.
Salary ranges are designed around competitive marketplace data. For example, if you compare the average pay for a receptionist in the marketplace, the average salary could be $10 per hour. A reasonable range from the minimum of the range to the maximum is 120 percent. So the minimum of the range would be $9 and the maximum would be $11. It would take an employee who was hired at the minimum of the grade, and receiving average increases of 5 percent, four years to move up the grade. This would assume there would be no adjustments to the grade, which could occur depending on the marketplace demand for receptionists.
If you are interviewing an experienced receptionist, do not be afraid to hire into the range instead of at the minimum. Of course, you should also consider the internal equity with other receptionists in the company.
Comparison of salary grades and actual salaries to the marketplace and within the company. For positions that are in great demand in the marketplace, salary ranges, actual salaries and hiring rates need to be reviewed every year. When comparing ranges and salaries in the marketplace, compare data in organizations similar in size to yours. In the health care industry, compensation analysts pay particular attention to number of beds or patients served, revenue/expenses, employee size, company size and structure, and geographical location.
There are many salary surveys and compensation information that can be purchased or even viewed on Web sites including: www.ahca.org (American Health Care Association or contact your local state Health Care Association); www.shrm.org (Society for Human Resources Management); www.wmmercer.com, watsonwyatt.com and abbott-langer.com.
It's also helpful for your human resources department to network with your competitors. Some HR professionals belong to local or national organizations that share compensation information.
In comparing actual job duties, if 75 to 80 percent of the duties are the same, then it is considered a good match. If there is a 50 percent match and the other position is more complex, then your salary range should be less. If there is a 50 percent match and the other position is less complex, then your salary range can warrant a higher midpoint and range.
Once you survey the external market, it's important to overlay the information to ensure internal equity. This means looking at the actual salaries of each person in the same job to ensure that those with more experience and performing at higher levels are being paid more. If this is not the case, give equity increases to boost the salary to be externally and internally competitive. Don't wait until the next performance review because the employee will forever be playing catch up. Salary equity increases should not be considered merit increases. Equity increases also help guard against salary compression with new hires if you need to hire into the salary range.
Merit-increase guidelines with a performance appraisal system. Merit salary increases should be based on performance, not cost-of-living increases. Merit-increase guidelines are based on the marketplace and a company's ability to pay. Some companies use the performance appraisal ratings to determine the increase percentage. For example, an outstanding rating may equal a 6 percent increase and an average rating may equal a 3.5 percent increase. Of course, managers need to also consider their budget dollars for increases.
Bonus structures as deemed necessary for the type of job and consistent with the marketplace. Certain jobs, such as sales and executive, have historically been compensated with base pay plus bonus. Depending on the job and the marketplace, there may be more "at risk" pay than base pay or vice versa. Most companies that have bonuses include trigger payouts that are based on company, department and individual contributions. Bonuses are meant to incent higher levels of output. Make certain the bonus is incenting the desired behavior and output consistent with company goals. A compensation analyst or compensation consultant can provide assistance in bonus program design.
Meaningful recognition programs. The most powerful recognition tool managers have is providing specific, timely, verbal, positive feedback. All the other creative ideas to recognize employees should be based on giving positive feedback.
In 1001 Ways to Reward Employees Bob Nelson provides numerous ideas on ways to recognize employees.3 In picking some for your employees, ensure they fit the personality style of the employee. For example, for an employee who prefers not to receive recognition in front of a larger group, use a written note or restaurant gift certificate.
Does money motivate employees? It can certainly demotivate an employee if effective compensation and recognition programs are not in place. An organization should pay attention to both the motivational and maintenance factors to ensure employee motivation and overall successful human resource management.
References:
1. Lawrence Lindahl, Personnel 1949, Kovach, 1980 and Bob Nelson, 1991.
2. Herzberg, Mausner and Snyderman. The Motivation to Work. New York: John Wiley and Sons Inc.1959.
3. Nelson B. 1001 Ways to Reward Employees. New York: Workman Publishing, 1994.
Sue Romero, owner of Susan Romero Consulting, Englewood, Colo., is a human resources consultant specializing in employee relations issues, manager coaching and management training. She has over 20 years experience coaching managers on enhancing their effectiveness. Visit her website at www.romeroconsulting.com.