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Author's profile photo Sven Ringling

Think about Engagement and Compensation. … Think again!

“All uneven numbers except ‘1’ are prime numbers.”

Proof: 3 is prime, 5 is prime, 7 is prime, 9 is… hm… this must be poorly implemented, 11 is prime, 13 is prime,…

Unconvinced by this proof? You are right. Obviously, this statement is just plainly WRONG!

“When talented employees are rewarded, they become even more engaged and productive (source: Successfactors, webinar page),

Well, please promise to read beyond this line before sending a hit man after me, but this, too, is WRONG.

So, am I suggesting, compensation / rewards are not important for engagement? Absolutely not! It is a very important element in creating employee engagement, but:

  • it is not everything and
  • it can even harm engagement, when done wrongly (and “wrongly” doesn’t always mean “not enough money”)

I’m not writing this to diminish the usefulness of the Successfactors compensation solution, or indeed of any other compensation solution. I’m writing this to get you looking at the bigger picture again. When you listen to compensation specialists and solution vendors, you could be excused for thinking that the right performance related reward is all you need to create a very loyal, engaged and productive workforce. And wherever a cutting edge compensation solution is used without that result, it’s attributed to poor implementation of the idea, not the idea itself.

So, how do good compensation processes supported by easy to use systems and insightful data help engagement? An extremely important hygiene factor for engagement is perceived fairness. A good system is certainly doing that by aligning compensation levels with industry benchmarks, rewarding good performance and making all this transparent and easy to understand for the employee. All features Jeremy Masters rightly highlighted in his recent blog Building a culture of ongoing engagement with compensation management best practices (definitely a recommended read).

It also gives the employee a feeling of being in control to some extend: “If I perform well, I get more reward”. All very good.

However, there are 3 forces pushing against the positive impact we’d expect and it is not sure, which side will win:

1) Ambitious people are usually taking the change in reward as a measure of personal success (as a human being, not just as an employee), not the reward itself. So, to constantly feel successful, their bonuses need to go further and  further. They may even take the change in the raise as their measure, so not be happy with the bonus going up 10% every year, but need 15% rise this year, if it went up 10% last year. Assuming you are not giving away bonuses for nothing, this can be a slippery slope into a very ugly hole: Burnout – Depression – Long Term Sick – End of Career

2) There are always people, who know exactly how to maximise their reward and don’t care whether this is actually damaging the organisation as a whole. History proofs again and again, that you’ll never be able to set up a manageable set of KPIs comprehensive enough to drive employees into the right direction without any further constraints and attractions. Bankers’ bonuses driving them to high risk deals breaking the bank are only one recent and well known example.

3) Even avoiding this, the optimistic statement about compensation has a very unpleasant feat in common with the one about prime numbers: the further you go along, the more likely it’s not going to work. 7 out of 10 uneven numbers below 20 are prime. Only 4 out of 10 between 20 and 40 are. And it goes on. The lucky hits with a compensation focused engagement strategy will be thinning out in a similar way. The buzzword is “intrinsic motivation” aka fun/sense of mission and the problem is that it can be destroyed by extrinsic motivation aka money/share options.
There is nothing like this little story to illustrate the problem. Take a seat, have a cup of tea, and listen:

Once there was a lonely old man 🙁 living in a very large old house on the edge of town. Nobody really knew him and children found him scary or at least weird. One Saturday just after school ended, a bunch of boys passed the old house on their way to the football pitch (soccer for our American friends) and as they all had their slings with them, the ringleader 😎 suggested a little competition: the first to break one of those windows wins 😏 . Sure enough, very soon one boy scored and a window broke noisily. The old man heard it and went after them 😡 , but, of course, the boys were faster. The chase actually added to the thrill and so they made it part of their Saturday routine to break a window in the old man’s house with their slings, and laughed at the sight of the poor guy chasing them completely out of breath 😥 . One Saturday, after almost two months, the old man was waiting for them at the fence. He said: “No need to be scared. I have a deal for you. I need the upper right window over there broken. If you do that, I’ll pay you one Pound. They couldn’t believe it 😆 . Wow! Sure enough, the window in question was hit by a stone and broken within minutes and the old man was as good as his word and paid them a Pound. Next week the same, only that he paid them 2 Pounds now, and so on. So, 5 weeks later, the boys arrived again anticipating 16 pounds easily earned 😀 . And the old man was standing at the fence as expected and asked them to hit the 4th window from the right on the 1st floor. “That would be 16 Pounds” the ringleader said. “Oh no”, the old man replied. “I won’t be paying you for this any more. You’ve got enough money from me by now and I only have a small pension.” “Well, ” said the ringleader 😯 , “then there’s no deal. We certainly can’t be expected to work for free, can we?”. And they never bothered the old man and his windows again… 🙂 “

Obviously, I’m not suggesting you stop paying your employees any more and hope for great results (they might actually break a few windows, but I guess that’s not what you want to achieve). Want I want to point out is that compensation and engagement have a very complex relationship with each other (think “marriage” 😉 ). There is a whole bunch of factors playing a role like organisational culture, personality types, economic environment, … But what I found an important guiding principle is that the employee feels his or her value is appreciated by the organisation and, probably even more importantly, by their boss. Therefore, a fair compensation reflecting their contribution to the organisation, but also reflecting the organisation’s financial situation is important. But there’s a human element. If the carrot is just seen as a vehicle to make them run faster, it may already have lost effectiveness. If the reward is seen as awarded by an anonymous HR department, it may be less effective than one coming from the line manager. And individual mind-sets and personalities make it even more difficult. You definitely need excellent line managers, who know their people and are good communicators at the forefront of the process, supported by advice, easy to use systems and helpful data.

It’s an ongoing struggle to keep improving. If you see great processes and systems as a means to an end and excellent line managers and the right organisational culture as the key, I dare-say you are on the right track.

Happy rewarding!

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