When Daniel Pink’s bestselling book Drive came out, it disrupted the entire employee engagement field. The book focused on the difference between internal and external motivators and how the internal ones, such as autonomy, mastery, and purpose, easily trump the external ones like compensation. Despite this claim, Dan Pink emphasized multiple times that this is true only when “money is removed from the table.” He meant that you need to cover the essential employees’ needs so that autonomy, mastery, and purpose can play a significant motivational role.
To harness the power of employee engagement and hit business goals with motivated employees, you will first need to set a baseline for that engagement to happen— and that starts with compensation.
A great compensation model does five things to your company:
- It attracts top talent
- It increases employee motivation
- It boosts employee loyalty
- It increases productivity and profitability
- It provides job satisfaction which helps employee retention
Three things that happen when you ignore compensation
Compensation needs to be connected with performance. If it isn’t connected, then multiple problems happen. Some of the issues are easy to fix and manage while others can derail your entire business structure. Unfortunately, most employers aren’t willing to implement a good compensation model so they leave things as they are. Here are three things that can happen to a company if they ignore compensation:
Hindering motivation and engagement
Hindering motivation and engagement is the smallest problem. This problem happens when employees aren’t satisfied with the current compensation model and they think that their performance isn’t completely connected with their compensation. This demotivates the top performers who see that they’re being treated just like everyone else even though their business results are better. The demotivation of star performers causes them to start being less productive since they’re not being acknowledged for their effort.
The reward doesn’t even have to be monetary, it just needs to be a reward that acknowledges their efforts. There’s a famous ad Ernest Shackleton used when he was trying to find people for his Trans-Atlantic Expedition:
“Men wanted for hazardous journey. Low wages, bitter cold, long hours of complete darkness. Safe return doubtful. Honour and recognition in event of success”
Becomes the cause of turnover
Compensation being the cause of turnover is quite a big problem for any company to have. Employees don’t think that their performance is tied to the compensation model and they actively start to look for different opportunities at other companies, usually competitors. The problem with turnover is that it causes major losses to the company, productivity plummets, and creates an ineffective workplace culture. The problems in this phase are quite severe.
Working against your corporate strategy
This is the biggest problem you can have that is caused by a poor compensation model. Stephen Covey had a great analogy for this problem:
- Imagine you have 11 players on the field who are playing football (soccer) for your company. Out of those 11 players, only 4 would know which goal is theirs, only 2 would care about it, 2 would know where they play and what their role is, and 3 players would actively work against their own team members.
The three players that would actively work against their team members and the company are the employees that would work against your corporate strategy. They would actively do everything they can so that the company fails to achieve its business goals.
All of the above-mentioned compensation problems can be solved before they become a problem; however, you will need to implement three solutions for these compensation problems to disappear.
The three solutions to the problem
There are three major solutions to the problem of effective compensation.
Talent management evolution
Your company will need to go through a talent management evolution to solve the problems that poor compensation models can cause. When it comes to a talent management evolution, a company needs to work on the following areas:
- Payroll. Create a relevant compensation plan with details on bonuses, incentives, and commissions.
- Performance management. Using modern goal-setting systems that are relevant in an online workspace.
- Succession planning. 91 percent of millennials show interest in management opportunities, so you will need to create career paths for millennials if you want them to stick around.
Employee engagement initiatives
Employee engagement initiatives show your employees that you’re expecting them to take action and contribute to creating a better workplace. An employee engagement initiative shows employees that they co-create a workplace instead of being passive members in the office. The initiatives are either a result of direct employee involvement or they come from employers after employees have given their input (feedback and proposals). Here are a couple of examples:
- Bringing company values to life by implementing one of them in a creative way
- Creating a transparency report
- Asking employees to write their own job descriptions to see how they could be improved
- Creating a Q&A channel with your employees
- Providing recognition to your outstanding employees
- Offering personal and professional coaching
Using new HR technologies
Using new HR technologies is a must if you want to stay relevant in today’s marketplace. Millennials and Gen Z members who are just entering the workplace expect certain technologies to be in place so they can work, communicate, and exchange ideas with ease. Consider having things such as:
- EC Payroll system
- Becoming agile by using Kanban systems such as Trello, Asana, or Airtable
- Having a communication app such as Slack for easier and faster communication
- Pulse surveys to collect feedback
Compensation can be a really great pillar for your business’s brand, employee attraction, and employee retention. When not dealt with, compensation can also cause major problems such as lack of motivation, engagement, and employee turnover. To solve the problem of compensation, you will need to evolve your talent management, implement employee engagement initiatives, and use new HR technologies.
To learn more about benefits, pay, and compensation, join our webinar on Tuesday, August 24th at 1 pm EDT to learn how to align a total rewards plan with data-driven performance.