Without question, cash is the most common (and many would argue the most important) form of compensation. Each year, most employees look forward to increasing their income. The general thought is that after 12 months of good work, an employee is entitled to a raise. This raise is expected to reflect the value the company places on the individual receiving it—or something like that.
Sometimes, however, no matter how well an employee performs, the employer may not have the capacity to give the employee the raise he thinks he deserves; other times the employer can and should. Either way, an employee’s pay and potential raises are only a part of his overall compensation.
Indirect versus direct compensation
There are two types of compensation: direct and indirect. Direct compensation consists of things like cash money and bonuses; indirect compensation consists of things other than cash money, including benefits, rewards programs, and long-term incentives. Indirect forms of compensation are becoming more and more popular. Good group benefits or paid leave policies can often make up for what might otherwise be seen as pay deficiencies.
Leveraging nontraditional indirect incentives
In addition to their standard indirect forms of compensation, more companies have started using various reward or point systems. Points earned for good performance can later be used by the employee to redeem all sorts of gift items, travel perks, or even additional days off from work.
Incentives keep employees engaged and feeling rewarded for a job well done. Managers are usually allotted a certain number of points or rewards to distribute amongst their employees accordingly. Sometimes managers will organize competitions; other times they may choose to disperse points depending on the employee’s efforts to go above and beyond.
Understanding your employees
As an employer it’s important to understand your workforce and what motivates them. For example, giving extra time off to employees who don’t generally use all their normal time may be cost effective but could leave those employees feeling undervalued, because they have a benefit they’ll never realize. On the other hand, employees who use most, if not all, of their time will probably view more paid leave as a hugely beneficial form of compensation.
By gaining a good grasp of your employees and the different types of compensation likely to leave them feeling appreciated, you’ll have the ability to leverage various resources and tailor your compensation to specific individuals or groups of employees. In addition, personalizing compensation plans shows that you pay attention and genuinely value your employees and the good work they do for you.
The comany I work for uses additional paid time off extensively as I work as a contractor. As such, raises per say, aren’t built into the contract so other forms besides pay raises are used. Doing the math, getting an additional week off but still being paid is like a 1.3% raise for a good protion of the employees.
More paid time off…..otherwise, its all about the Benjamins!
I like when my employer gives me paid time off in lew of a raise when times are a bit rough, however as long as I know a raise is in the near future.
Things like movie tickets, gift cards, etc have to be tax according to the IRS. So it depends on the employee, so feel its a hassel to have to have taxes for this taken out.
Paid time off seems to usually be a positive all around.
This strategy assumes the employee already earns enough to cover their basic living expenses, which will be a problem for lower wage earners.
As an article about non-traditional compensation, this is interesting. But I think it is important to separate that from a discussion about motivation and engagement, which you also mentioned. True engagement is about loving the work you do and being motivated to give it your best – without the incentives. Incentives are for making people do something they wouldn’t choose to do on their own, and aside from basic salary, only really work for temporary bursts of effort, like working the weekend to finish a project on time. How ironic that I found this article on the same page as… Read more »
Any ideas of what to do for an employee who is way over in allotted sick days. Does an excellent job when she is at work but misses so much time. I am at whit’s end as to how to encourage better attendance.
Great article, and nails the balance you need to have by better understanding what drives your people to even show up in the morning. I also like the youtube article by Dan Pink on Motivation which addresses where cash works perhaps the best and where indirect compensation works more effectively.
I thought you could get in trouble for giving unequal extras !
The challenge to reward employee when the salary budget is only 2-3% is difficult; not to mention within this limited budget to differentiate pay by performance. Using stock may be an avenue, however, it is subject to stock price fluctuations as well as exchange rate. Nonetheless, using indirect compensation is a good reminder.
The first thing to be determined is the type of employee disposition your dealing with , professional or layman ? For the layman salary/wages increases vs perks/incentives to engage the employee…neither seem to work that well. Either way after a while these become an expectation and viewed by the employee as part of his/her remuneration. If the company cuts them down or terminates either of them the employee becomes disgruntled . An employer has to be careful not to create a monster that becomes overly complex and unwieldy to control. Perks and incentives work best for the professional who see’s… Read more »
I thought you made a great point when you said that you should understand your employees when creating incentive strategies. My brother recently started his own insurance firm. He may want to implement incentive programs so that his employees will continue to work hard for him.