“Employee pay is the number-one issue facing companies today.”

HR guru and consultant Sharlyn Lauby uses data from two national reports to back up that statement in her blog, Employees Want Better Pay–Period,” at HR Bartender. The first is Quantum Workplace’s “2014 Recognition Trends Report and the second is the Society for Human Resource Management’s (SHRM) “Employee Job Satisfaction and Engagement: The Road to Economic Recovery.”

Employee Compensation Matters

It’s About the Paycheck

Both show employee compensation is linked to job satisfaction and recognition for nearly all employees: all generations, genders, races, ethnicities, education levels, tenure levels, position titles, and departments. 

“Even engaged and disengaged employees agree that pay increases are the number one form of recognition,” Lauby writes. “It’s about the paycheck.”

Like many human resources professionals, Lauby said for years that money isn’t a top motivator. 

“Well guess what? That’s changed. After reading these reports, it’s hard to ignore that money is THE motivator,” she emphasizes. “If companies want employees to focus on being productive, owning their career development, and having a higher sense of engagement, then they need to figure out how to take the money conversation off the table. Only then will the conversation shift to perks like leadership development, telecommuting, and team building.”

Some employees will accept jobs for less-competitive salaries if the company offers unique benefits, like free travel or great discounts on merchandise, or if the firm offers work experiences they can’t find another way.

“But if you’re a company that doesn’t offer either of those things—great perks or awesome work experience opportunities—then what are you offering that would make employees not think about pay?” Lauby asks.

As the labor market gets tighter, competition for top talent is heating up. 

“I can see in the not-so-distant future a candidate saying, ‘I have offers from other companies—at a higher salary.’ Why should I come to work for you?’” predicts Lauby. “Organizations need to be prepared to answer the question.”

Well-designed Employee Compensation Plans Motivate

Of course, in order for pay to effectively help you recruit and retain employees, and to help improve productivity, your compensation plan needs to be well-designed. Mae Lon Ding, president of Personnel Systems Associates, cites an American Compensation Association and American Productivity Center survey of more than 1,500 compensation and productivity professionals in “Does Money Motivate Employees?” 

“In jobs where significant variability in pay occurs in compensation and where it is closely related to key performance factors, then pay can be a big motivator,” she writes.

The survey reports that 66% to 89% of companies rated compensation and rewards systems as having positive or very positive effects on employee performance when the businesses used techniques such as gain sharing, small group incentives, profit-sharing, individual incentives, and lump sum bonuses. 

“Most employees are money-motivated when they perceive the target is achievable and within their reach and where the rewards are also significant for target achievement,” notes Ding.

Mid- to low-performing employees’ motivation and productivity generally increase most when companies enhance compensation-plan design, since top performers were already giving nearly 100% effort. If 50% to 70% of employees improve their performance, the payoff from implementing the new plan can be significant.

“It is a shame for an employer to ignore the motivational effect that can be achieved with payroll dollars since it is such a large expense item for most businesses,” Ding concludes.

Your employee compensation working as hard as it can for you?  If not, it’s a good time to reassess say leading HR professionals.

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