My strategy for compensating employees

Nov 30, 2009

Although there have been many compensation-related articles over the years in the pages of The Zweig Letter, I thought perhaps it was time to clearly articulate my own strategies for compensating employees in A/E/P and environmental firms. So here it goes: Strategy number one— divide the employee group into two major pots. All employees go into one of two categories. First are those who could have a business of their own. I think SOME people (those who could make it on their own) give up a lot when they take a job with a company. That is always at the forefront of my mind when I consider how to pay them. Second are those who do not have such options. This will impact their compensation packages. Those who could have their own businesses are going to do better— a lot better— than those who don’t have that option. Strategy number two— pay a bonus more based on firm or unit performance vs. individual performance. I am not a big fan of most so-called “incentive compensation plans.” They are too often a poor substitute for management doing its job, i.e., reforming or weeding out non-performers. The incentive plan that discriminates against low performers is supposed to get a message across to them to shape up or ship out. Yet, rarely do they leave— they are poor performers, after all, and have few options. Plus, there is the inescapable fact that little of what most A/E/P and environmental firms do is an individual effort. That’s why I am much more about bonus programs based on overall company and/or organizational unit performance than I am about those that reward or punish individual performance. Strategy number three— paying extra for performance is not as critical as NOT paying for poor performance. If you want morale to go up and total labor costs to go down, get rid of the deadbeats on your staff. You don’t need to go crazy paying extra for great performance. Strategy number four— tracking and reporting performance may be more important than paying extra for it. People like a scorecard, whether they are bowling or at work. Lack of performance feedback is ungratifying. Give ‘em the numbers. Strategy number five— telling people you think they did a good job is critical! The “Hawthorne Effect” was the result of a widely known experiment conducted at G.E.’s Hawthorne plant in Cicero, Ill., in the 1920s and 1930s. They just told one group of workers they were doing better than the others and, lo and behold, they actually DID do better. Strategy number six— pay better base salaries than your competitors. This makes it harder for your people to get recruited away. Plus, employees value base pay more than they do any incentive plan. One is a certainty and the other is just a “maybe.” Which would you prefer? Strategy number seven— do not share pay information with anyone you don’t have to! I believe in openness with the financials and a closed book when it comes to pay. Employees are often not unhappy with their pay (not the same as “happy”— almost no one is totally happy with their pay) UNTIL they find out what the person at the desk next to them makes. Strategy number eight— do not institute across the board pay freezes. Someone almost always deserves a raise even if the ship is sinking. And even if you don’t give out any raises, why announce that the possibility of one is non-existent? It doesn’t seem very smart to me. Strategy number nine— when salary dollars have to be cut, eliminate specific people from the payroll first before slashing everyone’s pay. And if the deadwood is all gone and pay cuts have to be made, start at the top. Make it possible to restore pay by achieving certain financial goals. Originally published 11/30/2009

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