Compensation Shifting Toward Incentive-Based Rewards
By Kevin Smith© Pasadena Star-News, December 11, 2004
Want to motivate your employees? You can start by establishing clear goals and rewarding workers for their individual efforts in helping to achieve those goals.
That's the consensus of several Southern California employment experts.
Nadine Winter of Watson Wyatt Worldwide, a Universal City-based firm that specializes in employee compensation and benefits, said it's crucial for workers - at all levels - to know why they are receiving incentive rewards.
"They want to be recognized and rewarded, and they want to know what they can do to help companies be successful,' said Winter, who serves as the company's practice leader for compensation for Southern California. "They don't want it to be 'the company does good' and by your good graces you get a part of that.'
There was a time when most employee incentives came in the form of annual pay raises - raises that were very predictable. But in today's workplace, the new catch phrase is "pay for performance.'
"Today it's a combination of company performance to meet certain predetermined goals, and individual performance to meet certain goals,' said Gary Kaplan, president of Gary Kaplan & Associates, a global executive search firm based in Pasadena.
"The whole bonus concept used to be reserved for the hierarchy of the organization. But today it also goes down into middle management.'
In short, more employees in today's economy are being rewarded for the extra effort and time they put in.
"From a company's perspective, compensation is very important,' said Larry Comp, a principal with Humanomics Inc., a Granada Hills company that helps businesses structure and design their compensation packages. "It usually accounts for one-third to two-thirds of a company's total budget, counting salaries, overtime, bonuses and employee benefits.'
So what makes for a good employee compensation package?
"The base salary should be in a competitive range, meaning it should be high enough to attract someone but not too high because it's a fixed cost,' Comp said. "If it's too high, you wouldn't have any room left to provide bonuses, which tend to be more motivational.'
Humanomics works with more than 150 companies. Most tend to be conservative with their base salaries, opting instead to place heavier emphasis on pay that's tied to job performance, he said.
"There used to be a kind of entitlement mentality ... that the company you worked for would take care of you and give you regular increases,' Comp said. "But now people are changing jobs with greater frequency or they are being laid off or fired. It's really created a shift from the traditional approach to a pay-for-performance culture.'
In many cases, traditional yearly salary increases aren't nearly what they used to be, said Kaplan.
"Annual pay increases have been dropping,' he said. "It used to be you could count on pay raises of 5 percent to 10 percent a year. But now the norm would be 1 percent, 3 percent or 4 percent. Many perceive these kinds of raises as paltry.'
As companies become more entrepreneurial, they are increasingly providing employee incentives through pay for performance, Kaplan said.
"Many professionals want jobs that are incentive driven,' he said. "They see meaningful opportunities for wealth accumulation.'
However, bigger raises and bonuses aren't expected to be in the cards for most employees next year, according to a new survey developed by Robert Half International Inc., the world's largest staffing service specializing in the accounting, finance and information technology fields.
Sixty-three percent of chief financial officers polled said they don't anticipate offering larger raises in 2005 than in 2004, and 62 percent don't plan to increase bonus amounts.
Another 18 percent indicated they expect to offer higher bonuses, 14 percent don't offer bonuses and 6 percent didn't know or didn't respond on the survey.
-- Kevin Smith can be reached at (626) 962-8811, Ext. 2701, or by e- mail at kevin.smith@sgvn.com .
