We all know compensation budgets are tight, with salary increase budgets at the lowest levels in "recorded" history (since consulting firms and WorldatWork started tracking this data closely in the past 30 or so years).
Granted, a 2% merit budget doesn't give you a lot to work with, but with bit of resolve and creativity, you CAN make an impact to retain, and drive performance with your best and most productive staff. Of course, this means you must be willing to shake things up a bit, make some hard decisions and really "pay for performance," instead of relying on the old milquetoast version of "merit pay" program that nearly all organizations use (or claim to use).
Here are a few ideas to get your creative juices flowing:
- For roughly 1% of payroll, you can give an average 5% pay increase to your top 20% performing employees.
- For 0% to a few percent of payroll, you can spice up your variable pay program (bonus or incentive program) with a budget that will only be spent as individuals, teams and/or the entire organization (depending on your plan design) increases its financial and other strategic goal performance. In other words, we only payout these funds if the performance supports it. Use it to drive performance towards targeted goals meaningful to your strategic business plans.
- Save cash dollars, but provide potentially valuable rewards to key performers (or larger chunks of your workforce) by offering non-cash (or low cash) rewards such as more flexible work schedules, greater telecommuting time or options, and new or increased recognition efforts.
- Increase use of long-term incentive rewards for top performers, such as new or enhanced restricted stock or stock option grants (especially while stock prices are depressed) to increase future rewards and retention.
- Offer special training and learning opportunities to your best performers, to enhance their engagement (and skills), while tying these special programs to retention.
- Enhance your recognition program efforts, in addition to one or more of the above suggestions.
Are these the only possibilities? Not at all - these are just a few ideas to whet your creative juices. In today's environment, we have to be more creative to enhance retention, drive greater performance, increase organizational loyalty ("they really took care of me during the recession") and make sure that our best performers don't feel neglected.
Some of you may be asking "if we spend more on our top performers, does that mean we'll have less for others?" Candidly, yes. Most organizations have limited resources, and who in these tough times do we most want to reward? For some organizations focused on egalitarian treatment and doling out nearly the same "pay for performance" packages for everyone, some of these ideas probably don't make sense. But then again, if that's your approach I sort of wonder how well you're doing in the "motivate and retain" arena. These are tough times, and they call for making tough (but organizationally-smart) decisions.
Don't forget, your top performers are the people that drive your organization forward, and the people that your competitors would most like to hire. Take care of them, and most of them will take care of you, now and in the future, when they will have opportunities elsewhere.
Doug Sayed is principal at Applied HR Strategies, a Seattle area compensation consultancy, and author of the StrategicPay Series Base Pay Toolkit, a guide for helping non-compensation experts to develop their own strategic compensation programs. Doug is a Certified Compensation Professional (CCP) with over 20 years of HR and compensation experience, and a Master's degree in HR management from the Ohio State University.
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