But compensation professionals (and readers of this blog) know the pay cheque is but one part of a very complex agreement between employer and employee to maximize a mutually beneficial relationship. This is especially true with trends showing salary budget increases remaining stagnant even as the job market improves. Latest in these reports is Mercer’s 2015/2016 US Compensation Planning Survey, which is well summarized in this SHRM report.
In short, the report references three primary alternative rewards methods companies are relying on more and more instead of the typical broad-based salary increase:
- Performance-related bonuses, in the vein of standard performance-based pay practices with tiers of bonus based on performance ranking
- Promotion to increased responsibility with commensurate increase in pay
- Career-change opportunities within the company to keep employees on board while diversifying capabilities
Since, according to Mercer, the average salary budget increase is expected to be 2.9% (as compared to 2.8% in 2015), companies clearly need to do more to keep top performers interested. While all three items listed above are certainly viable and appropriate options depending on the circumstances, they are also costly and ultimately limited in applicability. There are only so many advanced roles available for promotion. Not all employees are suited for internal career changes, even when those opportunities exist. And performance-related bonuses tend to focus only on the full picture, eliminating the opportunity for lower performers to receive appropriate rewards when they do exceed expectations.
But the challenge is much greater than that. Every employee (regardless of current or past performance) has the ability to give additional discretionary effort if they so choose. Each of us has the capacity to go the extra mile. The catch is in finding the trigger that makes us want to do so. For some, it’s the knowledge that the work being done has deeper meaning and purpose or is aligned with personal values and goals. For others, it’s knowing the extra effort helps others (colleagues, customers or the company) succeed. And we all know some work harder to advance their own careers and agendas.
That’s the essence of employee engagement. As the term has morphed into the latest business buzz word, I fear we’ve lost a true understanding of its meaning from a management perspective. Or, indeed, from a human perspective. When we are more engaged in our work, we derive greater satisfaction and pleasure from it. We know the intrinsic value of what we do. We tend to be happier and more fulfilled.
So what boosts engagement most effectively? Compensation is, as I opened this post saying, a fundamental part of the employee contract. But, dollar-for-dollar, employee recognition returns more in increased employee engagement.
A large multi-national client of ours conducted a conjoint analysis study in five major markets across 10,000 of their employees. The results seemed to prove impressively the value for investment that recognition delivers versus other forms of compensation. Their research indicated it would cost them $110 million in compensation to boost engagement by 8%, while an investment of just $5 million would boost engagement by 3%. Like-for-like, you’d need $41.2 million in additional compensation to achieve the same 3% gain in engagement that a $5M investment in recognition would deliver. That suggests recognition is more than eight times more effective than compensation increases alone in delivering incremental gains in employee engagement levels.
It’s hard to argue with a business case like that. Yes, compensation is important as the foundation of the employment contract, but frequent and timely recognition and rewards for which all employees are eligible is a much more powerful way to engage employees in delivering far beyond the contracted agreement.
What primary means does your organization use to compensation, engage, recognize and reward employees?
As Globoforce’s Vice President of Client Strategy and Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. He is the co-author of "The Power of Thanks" and his articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.