Why Is a Paycheck Never Enough?

How many times have you wondered what it would take to motivate all your employees to perform like your best employees? Have you wondered if changing your pay plan would make a difference? If so, then you're not alone. But, like so many others, you could be wasting your time trying to spur increased performance (and thus more business) simply by changing how you pay people.

If you did a web search on the phrase "compensation plan," you'd get more pages than you could read in a week. I know because I've done it. And if you did read the most important and useful works on the subject of compensation, you'll find that most experts agree on two key principles:

• Employees view compensation as a secondary motivator at best.

• Employees view their pay as only a part of the compensation they receive for their work.

Study after study has shown that employees are motivated far more by recognition, stability, a good relationship with their boss, and other internal factors than by their paycheck alone. In fact, in some surveys the paycheck finishes as low as fourteenth place in a list of motivators. So if you try to change employee performance by changing your pay plan, you are probably going to fail. With one exception: if you need to bring your compensation up to par with the competition, then the change will help. A fair base pay is absolutely essential. We'll see why a little bit later.

Employees see their compensation in four parts. These are:

Base pay - this is the return they get for their every-day value.

Variable pay - this is the return they receive for added value in meeting performance and achievement goals.

Recognition and celebration - this is the emotional benefit they receive when you acknowledge their worth to the business.

Benefits and indirect pay - this consists of any health or other insurance benefits, retirement plans, access to exercise facilities, and so on. It provides for their health and long-term security.

If you want to know how much a job candidate wants to earn, you could ask how much he would demand to work in hell and how little he would accept to work in heaven. That, in a nutshell, is what these four factors are all about.

To get the highest level of performance from your employees, each of these factors must be as attractive as possible to the employees and yet in balance with each other. What does it mean that each factor should be as attractive as possible? It's a judgment call and depends on your employment market. You know what it really means to pay "competitive wages" in your market.

Now, as long as the base pay and variable pay are comparable to what the employee could earn elsewhere and is essentially enough to live on, then the employee isn't going to spend a lot of energy worrying about paying his bills. Then he's free to be influenced by the internal factors that raise his level of pride in his work. This is why the biggest impact you can have on employee performance through compensation is by making changes in the two last factors: recognition and celebration, and benefits and indirect pay.

So what's the recognition and celebration atmosphere in your business? Do you recognize employees for their achievements? Do you celebrate milestones of employment, performance, and service?

And what about benefits and indirect pay? Could you provide a sturdier foundation for your employees' health or add to their long-term security?

If you want to improve overall employee performance and you feel you need to make changes in your compensation plan, then take a hard look at all four of these factors. And be sure to look through your employees' eyes. Is the paycheck sufficient to allow them to enjoy the recognition, celebration, benefits, and indirect pay that you offer? Do you offer enough recognition and other internal rewards to stimulate your employees?

Sure, these are hard questions. But if the answers you get indicate a need for change and you make those changes, let me assure you that the future will be brighter for you and for your employees.

And maybe you won't have to interview quite so many new job candidates.

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