By Jenny Sherman, SPHR CCP, Trupp HR.

In our previous articles on compensation we’ve discussed Compensation Strategy and 8 Factors that Contribute to Base Pay, outlining the to-dos for building a pay program in your organization. In this article, we discuss aligning your People Strategy with your compensation programs. Whatever an employer decides to offer to employees, it’s important that programs are well-constructed to reward and recognize the behaviors and performance the organization values. The components selected should satisfy multiple worker needs and ideally be linked to specific job performance goals. Following are reward strategies to help you attract top talent and retain your key performers.

Base Pay Increase Forecasts – Steady as She Goes

Survey results compiled by two leading compensation firms[1] reveal “cautious optimism,” reporting an average of 3% merit pay increase to employee salaries. The findings are consistent across all industries and job levels within organizations. The experts go on to say “Employers continue to walk a fine line between keeping a reign on their fixed base salary and benefit costs, while ensuring they can continue to attract top-caliber talent in an increasingly competitive labor market.”[1] Given this, it is important for employers to direct their limited financial rewards to those employees whose performance is exceeding expectations and contributing the most value to company success— however success is defined for your organization.

Non-Financial Rewards

When it comes to rewards and recognition, studies are clear that, once base pay needs are met, it’s not about the money. Beyond financial rewards, employees are generally seeking a deeper relationship with their employers and the work they do. How and what an organization recognizes and rewards drives organizational culture.

Research has consistently found that at the foundation of employee motivation and engagement are topics such as receiving praise and appreciation, having personal values aligned closely to organizational values, having close relationships with co-workers, a strong desire to make customers happy and experiencing excellence in leadership.  Simply put, employees want to be part of something meaningful, to feel included and informed, and to routinely be recognized for their contributions. Here are a few ideas.

Develop Strong Leaders.  Research is clear—strong leaders with the ability to coach, develop, and lead employees create high performance on their teams and help to retain staff. The word gets out to the best and brightest who clamor to work with them.

Growth Opportunities.  Opportunities to attend a conference, work on a challenging assignment or new responsibility, take on a big client, serve on a particular job-related panel or committee on the manager’s behalf, participate in educational or mentoring activities, or other specific opportunities create employee connections to their employer and a willingness to give more than what might be expected.

Praise.  The simplest and most universal way of recognizing someone is by saying thank you for their contribution or exceptional performance. A hand-written note delivered to the employee’s desk or sent to their home creates a positive and memorable experience for the employee. Coworkers or family members become aware of how important they are to their organization.

Flexible Work Schedule.  Allowing work-at-home, flexible summer hours, occasional changes in start and leave times or accommodating personal and recreational interests provides employees with a sense that the organization values them, creating opportunities for them to manage outside responsibilities.

Sabbaticals.  Growing in popularity, sabbaticals allow employees to do something they might not otherwise have a chance to do. One design for this program allows the employee to set aside money from their earnings to pay for a sabbatical period in the future.  This is a highly valued recognition strategy.

Mitigate Financial Risk with Variable Pay

There are a number of financial rewards that vary with the organization’s success and/or employee performance.  Tying key performance indicators (KPIs) specific for the company, a department or an individual to a form of variable pay, such as earnings-at-risk, bonuses, incentive pay, stock options, profit sharing can be an effective strategy. The underlying theory is to strike a balance between risk taking and paying for performance that results in value creation.

Creating an Effective Rewards Program

Whatever total rewards plan an organization chooses, it must be thoughtfully crafted to ensure that it pays for the right behaviors and outcomes. Jennifer Mackin[2] shares these Critical Elements of Design:

Competitive Salary. Start with salaries that “cover employee’s living expenses” – a higher base salary translates to more acceptable risk-taking.

Appropriate Incentives. Use appropriate “incentive award curves – a steep curve may encourage excessive risk taking, while a flat line may discourage individuals from taking appropriate risk.”

Careful Governance. Establish strong governance – Cross-functional governance serves to monitor risk, “discourage excessive risk taking” and make sure risk is aligned to the organizational strategy.

Variable pay is an important consideration in managing limited financial resources. Built thoughtfully and with the right checks and balances, it can help employees in turning their performance up a notch and knowing where to do so.


[1] Hay Group and WorldatWork, WorldatWork Newsline, July 18, 2013.

[2] Jennifer Mackin, A Balanced Compensation Approach:  Making Practical Risk-Reflective Pay Work at Your Company, July, 2010.