Employee compensation is the biggest motivational tool in the manager’s toolkit
In order to get the most from your employees, you need to have some sort of philosophical foundation about motivation. So let’s start from the beginning by defining what we mean by employee compensation, which is the biggest motivational tool you have. My definition says that employee compensation refers to all forms of financial returns and tangible services and benefits employees receive as part of the employment relationship.
You’ll notice that in this definition, employee compensation is more than cash. Compensation in my opinion is similar to a barter where we ask employees to do certain things for the company and the company will do certain things for them.
In order to successfully make this trade on the company’s behalf, managers have to believe in win-win trade. I do. And if you are creative enough, I think you can find ways to get things done and reward employees so that each party feels as if they got the best deal.
Consider the company’s ROI from the employee compensation expense
Anything you do in the employee compensation area has to consider the company’s return on any compensation expense. And I definitely believe that all forms of compensations should be viewed as an investment. Without good people doing good things, the company would not even exist. Your job is to get the greatest return you can for the company on the resources you spend which includes compensation expense, which is the largest expense by far that most companies have these days.
So within this context – and based on my experience, I believe you get the highest return for your investment in compensation by following these general principles — one, operate with as few people as possible. People are expensive; two, offer better than average compensation opportunity to people that you do have on board; and three, put as much of the total compensation in variable expense as you can.
Now, there’s limits as to how far you can push things in employee compensation areas. You need people to make money. I always check on the revenue per employee. It’s a test taken. If that’s going down, it’s probably an indication you don’t want to add people.
There may be even limits on how much you can leverage people, giving somebody a base salary that’s 25% of the market and putting the rest of infinite comp will attract probably a different type of person than you really want in these jobs. So, there are limits. But I believe if you follow these principles, generally that you can have a – increase your return on your compensation investment over time.
All your human resources type programs including employee compensation strive to accomplish these things — attract the right kind of people for the right job, retain the good people and three, motivate them to do the best job that they can.
Edited remarks from the Rapid Learning Institute webinar: “How to Set up Fair and Effective Pay Plans in an Uncertain Economy” by Rick Olivieri
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