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The role of compensation in employee engagement
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The role of compensation in employee engagement



Presentation for Business Uncovered at the Winona Chamber of Commerce on April 10, 2012.

Presentation for Business Uncovered at the Winona Chamber of Commerce on April 10, 2012.



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    The role of compensation in employee engagement The role of compensation in employee engagement Presentation Transcript

    • Business Uncovered Winona, MN April 10, 2012 William Gould, CEBS, SPHRTHE “ROLE” OFCOMPENSATION INEMPLOYEE ENGAGEMENT
    • SCILLY ISLES NAVAL DISASTER Adm. Cloudesley Shovell (1650 – 1707) Images from Wikipedia
    • MANAGING WORK Management and measurement of work in most organizations is built around the “science” of FLOW Faster production/service Controlling costs (including labor) Increasing profitability
    • COMPENSATION IN LABORRELATIONSHIP Government regulation and organized labor have profoundly influenced compensation systems Business management “science” was a foundation for compensation designs Piece-Rate compensation Gain-Sharing arrangements Incentive compensation arrangements Key Business Assumption: employees are motivated by extrinsic rewards to work harder and smarter; risk of loss may also be a motivator toward desired behaviors
    • AGENCY THEORY Economic theory: A dilemma (tension) exists where there is asymmetrical information held between a principal (employer) and his/her hired agent. Assumption: Employees will not give any more effort than that level which is equal to the value of the pay that they are receiving. Business Practice: Business should pay enough to get the behaviors desired from employees, but never more than they must – overpayment impacts profitability.
    • PERFORMANCE-BASEDCOMPENSATION PBC systems are based (at least in part) on Agency theory. Extrinsic monetary awards “drive” employee behaviors, according to designed incentives (Flow and Profitability): Merit-based pay programs (skills- or performance-based) Sales Commissions Annual executive incentive plans Long term incentive plans (cash, deferred, stock options) Gain-Sharing plans Profit Sharing plans
    • PROBLEM WITH PBC APPROACHES We assume that performance based compensation schemes work.
    • “It is easier to count the bottles than describe the wine.” -Thomas Stewart
    • BEHAVIORAL SCIENCE RESEARCH Our use of compensation systems is a result of functional fixedness – our practice does not follow the science. Contingent Motivators: Research shows that in many cases they don’t work, and can even cause harm  These motivators do work when there are simple rules and a clear direction – it causes a narrowing of focus  These are not effective when work requires creativity, or any form of rudimentary cognitive skill Source: Drive, Dan Pink
    • BEHAVIORAL SCIENCE RESEARCH Cognitive motivation studies have been replicated many times, and in many cultures. London School of Economics: Some financial incentives can result in a negative impact on overall business performance.Source: Drive, Dan Pink
    • BEHAVIORAL ECONOMICS Conventional economic theories assume that human beings are rational at all times. Behavioral science research proves that human beings are not rational, they are social. Organizations should be studied as social structures, not management constructs. “Social norms build loyalty and make people want to extend themselves to the degree that corporations need today: to be flexible, concerned and willing to pitch in.”Source: Predictably Irrational, Dan Ariely
    • SOCIAL STRUCTURES For employees, the value of anything is relative. Fairness trumps opportunities in social structures Peers define what is “normal” and what is “possible” within your organizationSource: Predictably Irrational, Dan Ariely
    • THE ROLE OF COMPENSATIONTODAY? “The future of profit is purpose.” - author unknown
    • 3 PRINCIPLES OF 21ST CENTURYCOMPENSATION STRUCTURES:1. Compensation is not the driving factor for changing employee or cultural behaviors; stop trying to drive change with money “Workforce” measures must move from flow and profitability to ENGAGEMENT5. Compensation strategies should be designed to take compensation off the table.
    • EMPLOYEE ENGAGEMENT “Employees’ ability and willingness to contribute to the company’s success” – IFEBP “People who work with passion and feel a profound connection to their company” - Gallop
    • DRIVING FACTORS OFENGAGEMENTGallup: 12 Core Questions of EE Engagement2. Do I know what is expected of me at work?3. Do I have the materials and equipment I need to do my work right?4. At work, do I have the opportunity to do what I do best every day?5. In the last 7 days, have I received recognition or praise for doing good work?6. Does my supervisor, or someone at work, seem to care about me as a person?7. Is there someone at work who encourages my development?
    • DRIVING FACTORS OFENGAGEMENT1. At work, do my opinions seem to count?2. Does the mission/purpose of my company make me feel my job is important?3. Are my co-workers committed to doing quality work?4. Do I have a best friend at work?5. In the last six months, has someone at work talked to me about my progress?6. In the last year, have I had opportunities at work to learn and grow?Source: First, Break All the Rules, Buckingham & Coffman
    • EMPLOYEE ENGAGEMENT Numerous studies on engagement have repeatedly shown that competitive salary levels, and other financial rewards are not among the top drivers of employee engagement. Soft-dollar elements:  Learning and development  Autonomy (especially professional roles)  Control  Company reputation  Authentic leadership However, salaries #1 consideration for selecting a new employerSource: International Foundation of Employee Benefit Plans
    • COMPENSATION IN EMPLOYEEENGAGEMENT Taking compensation off the table:  Primary compensation consideration is for recruitment of desired talent  Ongoing compensation strategy is to maintain a sense of fairness, and internal and external equity  If compensation is perceived as fair and competitive, it is largely a non-issue in retention and engagement activities Engagement work is about organization development. Compensation strategies should support engagement, not drive it.
    • Questions & Discussion
    • REFERENCES & RESOURCES Buckingham & Coffman, First, Break All the Rules: what the world’s greatest managers do differently (1999). Dan Ariely, Predictably Irrational: the hidden forces that shape our decisions (2010). Daniel Pink’s TED Talk: http://www.youtube.com/watch?v=rrkrvAUbU9Y Daniel Pink, Drive: the surprising truth about what motivates us (2011). International Foundation of Employee Benefit Plans: www.ifebp.org