Pay is probably the most powerful communication tool an employer has.
A book on compensation that I read recently explains very clearly how rewards (all pay, benefits and recognition) deliver the clearest message to employees about what is important to the company, and what the company wants from them. The authors remind readers that “few things get the attention of people in a company as well as pay does (1).” This got me thinking that companies “say” many things with money.
Pay—depending on how it is designed—can put employers and employees on the same team, or make them adversaries. It can encourage the top performers, or protect the worst ones. Money talks. In fact, if what company leaders say in words is contradicted by their pay policies, it is more likely that employees will “hear” and respond to the financial message more than the verbal or written one.
Ten Financial Policies that Communicate the Wrong Message to Employees
Because we often talk about mislaigned policies with corporate decision-makers, it occurred to me that many common approaches to pay and benefits deliver the wrong message. As examples, here is a list of ten financial policies and what they actually “say” to employees:
1. Policy: No bonuses, or standard bonuses for all.
Translation: Top performers are not of any higher value to us than those who perform the worst.
Impact: Our data show that performance suffers in environments without performance-based rewards. Also, high performers are more likely to leave jobs when they are not rewarded for performance. When the financial policy ignores performance, the message is: a) we don’t care how well you perform, and b) if you want to be paid for excellence, go somewhere else.
2. Policy: All pay is based on attendance, not output.
Translation: Face time is more important than work output.
Impact: Like Policy #1, when time is used as the proxy for productivity, we see lower production (in the same amount of time), and higher turnover in top workers. Further, team morale and employee quality of life suffer when workers compete to be seen working early or late. If time is what earns pay, workers will focus here first.
3. Policy: Unlimited sick time (yes, this still exists), 100% pay during disability, and use-it-or-lose-it plan designs.
Translation: You are worth as much to us when you’re home sick as you are when you’re working.
Impact: When workers earn the same amount of money whether they work or not, it sends a message (intended or not) that absence and work have equal value. And, when there is no personal loss for lost time (or potential gain for not using lost time—such as cash-back for unused time), workers make sure they use the time. The development of paying people for NOT working (which evolved in the 1940s) delivers a contradictory message about the essence of “a day’s work for a day’s pay.” There should be a shared value to both parties that reflects being at work.
4. Policy: A combination of no performance-pay, with rich medical and absence benefits.
Translation: We pay our sickest people the most.
Impact: When bonuses are sacrificed for health-related benefits, the workers who get the highest total compensation are those who use the most health services. A sick person will get full pay, time away from work, and potentially hundreds of thousands of dollars in medical services. The well person gets their regular base pay—and no more.
5. Policy: Paid vacation.
Translation: You may not be at work, but we’re still paying for your time…you still have obligations to us.
Impact: Many professionals are discovering that “vacations” are no longer protected when it comes to email and conference calls. Time off just becomes work relocation, and employees don’t have the full opportunity they need to recharge. Personal and family resentment toward the company can also result from corporate encroachment on personal time.
6. Policy: Participation incentives for enrolling in problem-focused health programs (without similar incentives rewarding low-risk people).
Translation: We don’t have much for people who take care of themselves, but if you’re unhealthy or high risk, we’ve got tons of resources for you!
Impact: Partly because legal rules prevent companies from designing incentives around ideal weight, low cholesterol and blood pressure, some employers pay for program participation instead of rewarding outcomes and continued health. Meanwhile, the employees who have been, and continue to stay healthy on their own often have access to far fewer resources and rewards.
7. Policy: Employees are charged the same amount regardless of whether they are covering only themselves, a spouse or an entire family.
Translation: People with spouses and families are worth more/receive higher compensation than single people (who subsidize their fellow employees with spouses and families).
Impact: While it is understandable that employers want to be family friendly with their policies, there is an inherent inequity in subsidizing/over-charging single workers and those in non-traditional relationships to afford such policies. As such, there is an inherent value statement about the value of single employees.
8. Policy: Rich medical benefits but limited investment in training and development.
Translation: We’d rather pay for your illness than invest in you and your career.
Impact: The employees who are attracted to the company, and who stay, will be those who place more value on benefits than career growth.
9. Policy: No profit sharing.
Translation: We are not on the same team. Regardless of how the company does, your situation will not change.
Impact: Employees who feel they have little connection to company success are less engaged in being productive and protective of corporate assets. This communicates an us-versus-them mentality.
10. Policy: Avoiding options that give employees decision latitude (e.g.consumer-directed health options, PTO banks, or variable-pay options).
Translation: We don’t trust you to make good choices with your own money.
Impact: We have actually heard employers and policy-makers openly admit distrusting the decision-making capacity of their employees when discussing options such as high-deductibles, bonus-pay options, or reduced pay during disability. This role is more paternal than is fitting for an employer, encouraging a relationship of dependency rather than partnership with employees.
Ten Ways to Re-align Incentives to Encourage Improved Outcomes
How do we “rephrase” our financial messages? Listen to how these new policies get translated when they are aligned with positive business goals.
1. New Policy: Noticeable and clearly understandable performance-based pay.
Translation (Instead of): High performers are of equal value to us as low performers.
(Aligned): Your success is our success, and we share that.
2. New Policy: Performance metrics are tied to results, not time.
Translation (Instead of): Face time is more important than work output.
(Aligned): It’s what you accomplish that matters most.
3. New Policy: Good: A PTO bank. Better: Less than 100% pay during time off.
Translation (Instead of): You are worth as much to us home sick as you are at work.
(Aligned): We share a mutual interest in your staying healthy and getting the care you need.
4. New Policy: Significant performance-based pay that is forfeited when absent. Less than 100% pay during Short-Term Disability.
Translation (Instead of): We like to pay our sickest people the most.
(Aligned): Being at work and productive is what we value most.
5. New Policy: Consider paying a higher rate for time at work, and less or no pay for absence. This draws a clear distinction and puts employees in complete control of their time away.
Translation (Instead of): Officially you are still on the clock, so maybe you should be available on your vacation.
(Aligned): Your time is your time.
6. New Policy: Rather than chasing health risks, provide an allowance for wellness activities for all. Pay attention to mixed messages about work hours (if you expect a 12-15 hour work day, you cannot also expect healthy behaviors, sleep, and stress management).
Translation (Instead of): We don’t have much for people who take care of themselves, but if you’re high risk, we’ve got tons of resources.
(Aligned): Staying healthy is of value to you and to us. (see #3 and #4 above).
7. New Policy: Examine pricing to see if it generates equal value for all.
Translation (Instead of): We use single workers and couples to subsidize services for employee families.
(Aligned): We respect everyone’s life choices and charge employees premiums that directly reflect their status.
8. New Policy: Shave costs off of health care, using a high-deductible plan. Re-invest in meaningful skills training.
Translation (Instead of): Health/illness is more important than career advancement.
(Aligned): We are dedicated to helping you advance your career.
9. New Policy: Practice profit-sharing, with regular updates about company performance.
Translation (Instead of): We are not on the same team. Regardless of how the company does, your situation will not change.
(Aligned): Your work matters. If the company does well, so will you.
10: New Policy: Put more money and more options directly into employee control. Allow employees to make choices about healthcare, time off, and work tasks.
Translation (Instead of): We don’t trust you to make good choices.
(Aligned): We trust you at work, and believe you own your life decisions.
Ask yourself what messages employees really “hear” in the way your organization spends money. And consider whether that is what you meant to say.
Why this matters: Spending indicates priorities. When company leaders say in words that “employees are their great asset,” or that they “value learning,” or that they “value hard work and innovation,” workers want to see employers walk the talk. If a company truly wants to reward and keep its best workers, encourage career advancement, and reinforce good health, spending patterns must confirm the message.
1. Zingheim PK, Schuster JR; Pay People Right! Breakthrough Reward Strategies to Create Great Companies. San Francisco: Jossey-Bass; 2000, p. 4.