When employees are interviewed and hired, they want to know about pay and other compensation. Lisa Holden, Penn State Extension, says employers need to explain to employees that cash wages and total compensation are two different things.
“Wages are more about the standard for your local area rather than using a national comparison,” said Holden. “A realistic minimum wage changes depending on what’s competitive for your area.”
Compensation isn’t just wages and salary, and sometimes ‘other’ compensation is what keeps an employee working at one place for many years. The flexibility to be able to attend children’s school and sports events is important to many employees and can be considered part of compensation. A employee knowing that he or she can come in early to work and leave in time to get to a child’s event is important. Employers often invest in education for certain employees, which is also compensation.
Holden says employers often go to great lengths to provide rewards to employees, but the rewards are often mismatched. If you, as the employer, want to provide employees with tickets to a local sports event, make sure that’s something they’re interested in.
What about pay raises? Holden suggests that pay raises should be based on merit. “Think more about merit raises, rather than something that happens automatically,” she said. “The definition of merit is ‘something that deserves or justifies a reward or commendation.’ It’s something above and beyond; something with merit.”
During an economic downturn, many companies will reduce or eliminate pay increases for workers who don’t perform up to certain expectations. “Workers who aren’t performing as well will bear the brunt of the downturn rather than our top performers,” said Holden. “Who do you want to keep in the long run? Do you want to keep top performers or average performers?”
We tend to think that money motivates workers, but that isn’t always the case. Being recognized for work can be more important to many. Money tends to be a shorter term ‘fix’ — you give a raise, and there’s an immediate bump, but it wears off over time. It’s the other things, like flex time, recognition, or the other reasons people are content to do their job that hold them at that job long-term.
Do employees leave because pay is too low? ‘Monster for Employees’ states that most workers don’t leave for money reasons, but managers like to hear it’s the money because that shifts the blame for losing employees away from themselves. “Many times when employees are asked why they’re leaving, it’s easy for them to say they got another job where they can make more money,” said Holden. “What they don’t say, and what people don’t ask, is ‘is there anything else we could have done differently? What the employee often doesn’t say is ‘I really didn’t like the supervisor, I didn’t like the hours, I didn’t feel like I was appreciated here.’ Sometimes they leave because of money, but there are other underlying reasons.”
A Harvard Business Review research project examining job satisfaction and salary showed a very weak link between those two components. A Gallup poll on employee engagement surveyed 1.4 million people in 192 companies representing 49 industries and showed similar results. “The theory is that if money is a tremendous motivator, the higher the pay level, the more employees will be engaged in their job,” said Holden. “What they found is that there was no difference in employee engagement by pay level. Workers at the lowest levels were very engaged in their job, loved their job and employees at the highest pay level did not like the job and were not well-engaged.”
If an employer can assemble a reasonable compensation package for employees, he or she should be able to recruit, hire and retain really good workers. But we need to understand not just ‘when will I get a raise’ but the underlying question they’re asking: ‘Am I valued here?’
What do employees want? A sense of achievement — they want to be able to complete the job. Part of accomplishing that is their understanding what they’re supposed to do, having the right tools and training and being allowed enough time to complete the job and do it well. Employees are also interested in opportunities for growth, becoming better or learning a new skill. “Take advantage of that,” said Holden. “It’s a great opportunity for the business.”
Trust and delegation is also important to employees. They want to know that if they are given responsibility for something in their job, they have the authority to do it. Holden says this is especially true for middle managers, who are expected to function as a supervisor, yet are given very little authority to make decisions or manage workers.
Recognition is critical to maintaining employees. A simple thank you and sincere appreciation means a lot, especially during busy times of the year or when working conditions are less than ideal due to weather.
Performance management covers supervisory practices as well as formal and informal feedback — how do we manage the people we have? How can an employer take advantage of non-monetary aspects to create a compensation package that’s attractive to prospective employees and that will keep current employees?
Holden says performance management begins with standard operating procedures, or SOPs. “It’s hard to define a ‘good job’ without SOPs,” she said. “You might have a picture in your head, but your employees don’t understand what that ‘good job’ is. Workers need clear direction, not vague hand waving.” Without SOPs in place, upper level employees can’t effectively train others, can’t provide feedback and can’t document poor performance. SOPs are critical for key areas, but also for areas that may seem mundane.
No feedback IS feedback. “If you aren’t saying to a person that they’ve done a really good job with something, you haven’t said anything to them,” said Holden. “Essentially what you’re saying is that it isn’t important. They’ve made a good effort but you didn’t even take 30 seconds to say, ‘hey thanks, I appreciate that’ or ‘you did a good job’, you’re saying the work they’re doing isn’t very important to you.”
When the employer provides feedback, they’re communicating, ‘I noticed what you did and I will remember’, so when it comes time for a performance review, I’ll remember this. Holden encourages managers to keep notes throughout the day and track everything for future reference. Holden says providing corrective feedback is important, and says to the employee, ‘I noticed what happened this time, and I need you to do it correctly next time.’
Formal performance reviews should be done at regular intervals, usually every year. The purpose is to help employees improve, and criteria should be based on how well employees perform their jobs as defined in the SOPs and job descriptions. “The purpose is not to be critical of every mistake they’ve made or to just get through it so we can decide who’s going to get a raise,” said Holden. “The underlying purpose is to help people understand what they’re doing well and what they need to improve. Criteria should be based on how well they’re performing their job.
The fact that there will be a review should be discussed at the time of hiring. While pay increases are often tied to performance reviews, there are good reasons not to follow this practice. “The simplest way of looking at it is that there’s anticipation that goes with a performance review,” said Holden, “and depending on when you are doing the review, it many not fit well with the business. However you decide to do it, people need to know how and when pay raises happen.”
Holden suggests that it’s a good idea to include some merit raises — earned and not entitled — especially when things are tight in the economy. Decide if you’re going to provide cost of living raises, and whether such raises are tied to business profits.
Declare your intentions — communicate on hiring ‘how things work’. Remind employees of the system in place and good performance management. “Be cautious about how you do that,” said Holden. “Sometimes businesses don’t do well and it might be due to other business decisions and not the employees. Let people know before performance review time, before raise time.”