Where’s the courage in that?
In the world of work, everyone has their calling. And those arguments of why nurses (I’m married to one) are at the bottom of the pay scale, taking account of the demands of an absolutely necessary service, compared to bankers, are largely meaningless. Bankers become bankers because they want to make money. Nurses are nurses for very different reasons. And to be fair, if we don’t create wealth and generate taxes, we wouldn’t be able to pay anyone in free health care. What they both share are pay and reward systems that are not fit for purpose and we, outside of these extremes, can learn and apply more successful strategies and models.
As business people we remain, mostly, only tied to the norms of the market and the expectations of our people, present and future. Within the financial constraints of our company, we enjoy complete discretion on how we decide to pay those around us.
Everything should be at our disposal, and an open-minded approach can benefit everyone involved. On the one hand, we have the ability to pay according to hours worked and can employ a flexible workforce according to demand. Only paying staff when you need them is a useful variable cost, geared to the direct immediate needs of the business.
This needs careful thought and management, as the downside for the worker is they never know what they’ll earn that week – not helpful for planning outgoings and paying the bills. Being fair and responsible with this style of reward is about ensuring a good reputation, which will help attract talented people. You don’t want to be the employer of last resort.
“I’m only working here until I can find something else. For what they pay I’m almost better off on benefits.” People saying things like this at the bottom end of the pay scale will have an impact all the way to the top and probably into the media. Not what you want, as that will affect recruitment and morale at all levels.
At the other end of the scale, the average pay package of a FTSE or Fortune 100 chief executive runs into millions. And it appears that all too often there is only a tenuous link to performance. Profits and share price slide in the wrong direction, but salaries in the senior executive suite have been growing for largely inexplicable reasons.
The worst case is exploited workers at one end and the clichéd fat cats at the other. Millions of words have been written on the subject and it’s not my intention to add further to the volumes of criticism. But I would like to look at a few common issues and offer some advice, which in my experience has every chance of working. It works for me and the companies I’m involved in.
First, be honest about what sort of company you’re running. Are you the type of company where people say, “trouble is, they don’t pay very well”? If attracting great people is part of your plan, then that’s a reputation you can do without. If you’re a company that’s known for paying well and respecting your colleagues, in my view that’s attractive. Particularly in a competitive recruitment market.
Base salary is the driver for other benefits, the most important of which is a pension (if you provide one), followed by incentive schemes and performance-related pay. If you don’t keep up with market rates, you fall into the trap of paying new hires at better rates than your loyal incumbents. Who, if you’re not careful, will soon work out that the only way to get a pay rise is to leave. Recognising that good people are hard to find, don’t lose the ones you have already.
Avoid blanket pay rises because you’ll inevitably be rewarding people as if they all perform at the same level of productivity. And they most certainly don’t. Use the under-performers’ allocation to hit above the market benchmark for the key achievers. In virtually every company, pay increases are discretionary. Yet too often someone on the wrong end of a difficult appraisal still benefits from the company increase. It is remarkable how often someone in the firing line for underperformance still gets paid more.
“Why do you think I should leave? You just gave me a pay rise!”
The much trickier areas to get right are bonuses, incentives and discretionary rewards. If you’re not careful, these can be counterproductive and, in the worst instances, divisive. On the other hand, performance-related pay (PRP) can improve productivity. Some time ago I was a director of a business where we scrapped annual discretionary bonuses for PRP. It made a really important, positive difference.
With discretionary bonuses, no one really knew what they had to do to get paid out. At the end of the year (far too long) they’d be given their number, which mostly disappointed. Their expectations hadn’t been managed and had got out of hand. Furthermore, they suspected that others had done better than them. My experience has taught me these pooled bonus schemes are mostly useless and not fit for purpose.
I worked at a company which was mostly owned by the founder. The remuneration meeting decisions were mostly based on their personal experience of meeting staff in the company restaurant.
CEO: “What are you saying we should pay Laura next year and what bonus this year?”
HR director: “Well, her director has recommended a 10% salary uplift and a 30% bonus.”
CEO: “Yes, I’m happy with that, pleasant lady, had a good chat with her last week about sailing – didn’t realise she sailed.”
HR director: “He’s recommending the same for John.”
CEO: “No. Absolutely not. Doesn’t clear his plates away at lunchtime. He’s worth half that.”
It may seem unreal, but I’ve witnessed, many times, these subjective prejudiced approaches to pay and reward. And promotions too. Where available evidence is downgraded or cast aside for an emotional, subjective view. This is not The Monday Revolution way of carrying on.
At a very different company, one of our managers was absolutely clear that reward equated to performance, not their ability to talk a good game. “We’re deciding whether they’ve performed, not whether we want to go on holiday with them.”
For me, annual bonuses and discretionary rewards have no place in the companies I’m involved in. In some instances, I’m still trying to win that battle, as in many places these things are ingrained and not easily removed. But the logic for doing something better is compelling and the arguments for preserving the status quo increasingly weak.
Talk to an interview candidate about a generous discretionary bonus scheme and they’ll mostly value it at zero. A nice-to-have maybe, but who knows where the hurdles will be set and anyway doesn’t discretionary mean just that?
Work is a financial and emotional contract between a company and a person. Do these things and we’ll pay you what we agreed. Do more than those things, go the extra mile, and we’ll pay you more. We expect you to uphold the values of the company in the course of doing your work, which includes appropriate behaviour and getting on with your colleagues.
Of course, it’s possible to closely define all of these things and create an endless list of objectives, which would rather defeat the purpose of this book. So, we’ll not do that.
By applying some basic principles it’s entirely possible to have a motivated individual and team. Just make sure you’re clear about what you want people to do, agree that with them, and pay them for it. Too often, reward discussions are an annual event, geared to a review or appraisal. Never a good idea, as the 12-month gap is far too long to achieve anything remotely useful.
Here’s what I mean:
Manager: “We’re five months into the year and running 30% behind budget; it’s not looking great is it?”
