SIX TYPES OF REWARD PLANS
Each of the six types is briefly discussed here, but the focus of this book is on the last three, which are also the subjects of the three succeeding chapters. Figure 2.2 combines the cost, participant focus, and type of plans as an overview of the reinforcement model.
Figure 2.2: The Reinforcement Model.
Compensation and Benefits: The Land of EntitlementMost basic compensation and benefit plans (see Figure 2.3) should be viewed as nothing more than entitlements—a cost of doing business, a part of the employment agreement between employee and employer. They focus on the individual, and their objective is to attract and, with luck, retain employees. They include adjustments to base pay due to promotion, market adjustments, cost of living, ornegotiated increases. They are simply what organizations must ante up to get in the employment game.
Figure 2.3: Base Compensation and Benefits.
Unfortunately, much of the merit pay connected to an organization’s performance management process—annual performance appraisals—has become entitlement as well. The pools of merit money are a relatively small percentage of employees’ basepay, often just enough to stay ahead of the cost of living. The ability to differentiate between the performance of most employees—the great majority who fall in the middle of the bell curve—is challenging, due to the limited skill or time commitment of managers forced to do the reviews, ineffective measurement tools, or a limited employee pool. Thus, the distribution of merit pay becomes more likespreading smooth than chunky peanut butter on a sandwich—most employees receive a roughly equal amount.
There are also variable entitlements such as annual bonuses—bonuses because they’re often not based on objective performance and don’t adjust base pay. They are variable because they do vary from year to year. Equal or larger bonuses are expected, however, in succeeding years, but the amountmay vary based on the size of the pool and your manager’s shifting opinion of you. These plans quickly become an entitlement. The bonuses are often thought to be a component of variable pay, but, more often than not, end up being part of the base compensation and retention strategy.
Susan knew there wasn’t much she could do with existing compensation and benefits to reward teamwork; corporatecontrolled base pay strategies, allowable raises, and benefits. The annual bonus (management incentive plan) only applied to a few top managers. She didn’t think it was much of a problem, anyway. The organization was generally competitive with the market in pay and benefits. HR ensures all adjustments are based on competitive data—currently about 4 percent in merit increases. with a few percentfor special adjustments and promotions.
Besides, there’s only one measure that changes to core compensation and benefits can truly affect: employee retention. Turnover in the company isn’t a problem, however; it’s averaging 7 percent, including both voluntary and involuntary departures. Raising base pay or benefits would increase costs with little return on investment. In addition, implementing asmall across-the-board pay increase would reinforce the existing hierarchical culture, as it likely would be seen as a paternalistic move by management. Susan believes the organization’s teams need active reward and recognition plans, not just one-time gifts that create the expectation of another to follow with no corresponding increase in team effort or business results.
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Organizations are more dependent than ever on intellectual capital to compete in today’s marketplace. Taking full advantage of that capital requires engaging not just the minds and capabilities of top product developers and computer programmers, but of the mail clerks, administrative assistants, and receptionists who have plenty of untapped,...
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