Post-Recession Incentives Kudos vs. Cash

By Bridget Testa

Sep. 23, 2010

Many employers don’t plan to reinstate bonuses and merit raises quite yet. Their caution during this fragile economic recovery is certainly understandable, but they can provide intangible rewards in lieu of financial incentives that may actually prove to be more motivational than money.

In the book Drive: The Surprising Truth About What Motivates Us, author Daniel H. Pink asserts that financial rewards motivate people only when tasks are routine. According to Pink, when a job demands creative thinking, anticipated performance-based financial incentives can actually decrease motivation by focusing attention on the reward, not the task. Pink says the best reward for creative work is intangible. “Praise and positive feedback are much less corrosive than cash and trophies,” he writes.

Creative workforces do want reasonable pay and benefits, of course. Fair compensation takes “the issue of money off the table so [employees] can focus on the work itself,” Pink writes.

Lack of funds—not Pink’s book—drove a real-life test of nonfinancial incentives this spring by the Colorado State Auditor’s Office. With no budget for raises in 2008, 2009 and possibly 2010, “we were losing midlevel employees,” says Cindi Stetson, deputy auditor. After talking with consulting firm the Herman Group, managers started delegating more complex work such as financial and performance audits to staff members. The managers also received training in coaching and staff empowerment.

The staff members were encouraged to brainstorm their own nonfinancial awards, such as lunch with the state auditors, “take your dog to work day” and the freedom to wear jeans when the Legislature isn’t in session. All the measures were “about empowering the staff, persuading managers to delegate more and get the staff involved in more interesting work,” Stetson says. A survey launched in mid-July will gauge staff opinions, but there has been informal feedback all along. “People are feeling more positive,” Stetson says.

The Colorado Auditor’s Office is still the exception, however. Most corporate employers remain focused on traditional rewards and recognition, but “resources are still constrained, and spending in human resources is still tight,” says Laury Sejen, head of strategic rewards at consulting firm Towers Watson & Co. “There is continued caution around incentive bonuses, reflecting tight management of labor costs.” In a January survey by Towers Watson of 459 HR executives worldwide, 32 percent of respondents said their companies gave no merit raises in 2009, while 12 percent didn’t expect to award merit increases in 2010.

Buck Consultants’ survey of 180 U.S. organizations in January found that 31 percent planned bonus increases this year, while 45 percent said bonuses would remain the same this year and 24 percent expected to trim their bonuses. By January, pay freezes had thawed for 30 percent of respondents in the Buck Consultants survey. Forty-nine percent said they would lift pay freezes this year, while 21 percent had no plans to end them. Increases will be minimal. Buck Consultants forecast an average pay boost of 2.2 percent in the United States. Towers Watson expected a 3 percent average pay increase globally.

“We tend to see a reluctance to increase salaries compared to bonuses,” says Tom Burke, director of compensation consulting for Buck Consultants. “Companies are being very cautious about increasing fixed costs, including benefits costs that are related to salary.”

Workforce Management, August 2010, p. 8, 10Subscribe Now!

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