Studies have shown that salary can just as easily de-motivate employees as motivate them. In fact, salaries generally operate as negative reinforcement rather than positive. For example, an employee receiving a lower than expected merit increase or bonus payment can certainly de-motivate. On the flip side, receiving the status quo merit increase or bonus amount every year can create an entitlement mentality. However, when it comes to motivating employees, salary is always one of the top factors, and therefore, it has to be part of your total rewards strategy. Many believe that the amount of money that is needed is at least enough to satisfy basic needs which vary by person. Obviously, when salary does not, at a minimum, cover essential needs, this serves to de-motivate.
In our blog Compensation: Beyond the Paycheck published 10/31/13, we discussed non-monetary rewards and benefits that aid in employee motivation. In this article we will focus on monetary rewards. Motivated employees make a difference to the workplace. They affect the working environment positively as well as improve customer service, sales or production. So, how can you determine if the salaries you are paying are motivating your workforce?
First, determine where to focus your compensation spending plan. This can vary depending on factors such as the current economy, the competitive environment, and where the company is in its life-cycle. For example a growing company with variable sales and income, may be better off focusing on base salaries. When business is good, it may be prudent to tie more bonus dollars to goals achieved.
Second, do your research, know your competition. Every organization can benefit from reputable industry salary surveys such as the WageWatch PeerMark™ and Benchmark reports, to determine competitive salaries. You should utilize salary survey data from the local market, your industry and from organizations of similar size. Work within your organization’s salary philosophy and the given financial situation to determine where to set salaries.
In addition to looking externally to market competition, look internally to ensure your internal pay structure and salaries are fair and equitable. Whether you like it or not, employees will discuss pay with one another. Ensure fair and equitable pay levels between employees in the same jobs, in the same departments, and jobs of comparable worth within your organization. Formal salary ranges within the organization where people with similar responsibilities and authority are grouped into the same salary range help to maintain internal equity. Set clear goals for what you want to achieve by setting salaries at certain levels. For example, you may pay an entry level manager less than market if you are hiring inexperience and providing a training and growth opportunity in exchange. Open and clear communication regarding the company’s salary structure and pay philosophy can aid in employees’ understanding of the methods used in determining their salary level and assist in demonstrating fairness and equity.
Merit pay is one of the most frequently used methods to drive employee performance. To be effective it needs to be linked to performance in a manner that is consistent with the mission of the organization. Merit increases can become de-motivating when your performance measurement system is flawed and/or inconsistently applied or when the merit increase amount that is linked to performance is inconsistently administered. Also with merit increases typically averaging 2 to 3 percent, studies show that increases lower than 7% are unlikely to have any impact on employee performance. What can help is applying behavioral principles to your pay for performance program such as giving employees a personal stake in the success of the company by showing a clear link between their efforts and results. Many companies base their compensation plan on time and not results. Of course, time is a factor and needs to be part of the equation. However, if you pay for results, you will get results.
A well planned salary and total rewards package will motivate your employees, help your company maintain a competitive advantage and help retain key employees. At WageWatch our compensation consultants can assist with your organization’s compensation needs and help you ensure that your compensation programs are supporting your company’s business strategy and objectives. WageWatch also offers accurate, up-to-date benefit surveys, salary surveys and pay practices data that will allow you to stay current with the times. This information is highly beneficial in creating the best salary and benefits packages that meet or rival the industry standards. For more information on our services, including consulting, salary survey data, benefit survey data and market compensation reports, please call WageWatch at 888-330-9243 or contact us online .