Connecting Compensation To Performance

How can employers motivate employees to reach for continual improvement?
By Holly Jessen | April 13, 2015

As a company seeks to position itself for longer-term sustainability and take advantage of new opportunities, the stakes for success and failure keep going up, says Scott McDermott, partner and chief operating officer of Ascendant Partners Inc. That’s why it’s so important that companies take a hard look at whether its employees are motivated to help the company be successful.

“In its minor form, the cost of complacency is lost earnings. Companies are leaving money on the table,” he says. “In its extreme, the cost of complacency is the equity in the company. Those that do not stay competitive, or make bad decisions on the big issues, will destroy value in the business by a forced sale at a low value or the total loss of the company.”

There are many reasons companies don’t take the steps necessary for change, says Jennifer Infantino, director of sales for P4 Consulting LLC. Maybe board members and executives are too busy dealing with the day-to-day emergencies to slow down for self-examination. Maybe they don’t know what to do to start. Maybe they don’t understand the cost. “I think it would rank higher on the list of things that are urgent if the cost of not doing it was better understood,” she says.

Infantino clarifies that she’s not talking about a situation where there are a few bad apple employees, causing problems. She’s talking about a company culture that “throws a wet blanket” over what employees really want to and can achieve. “I think it’s easy to overlook how much energy gets taken up by employees that are not engaged or are distrustful of the company for reasons that can be fixed,” she says. “That’s draining. It’s taking up the executives’ time and managers’ time, and that costs money. It tends to be difficult to quantify, but it is quantifiable.”

Almighty Dollar
Money is one thing that can either be a motivator or demotivator for employees. EPM conducted a survey of workers at ethanol plants and found that, of 234 respondents, 36 percent feel they are compensated too little.

Infantino recommends that companies complete a compensation study to find out how its compensation system stacks up to the industry as a whole and the geographic area where it is located. “You need to know whether or not you are paying your folks fairly,” she says. Once that information is known, the company can determine the next steps. “Here’s really the bottom line about money,” she told EPM. “People have to perceive that they are paid fairly and what they are being paid makes sense compared to coworkers, and to the marketplace, and once that requirement is meet, then money really becomes very much less of a motivator.”

She adds that if the company pays its employees fairly and is transparent about that, it takes money off the table as a distraction. And, for employees who are paid fairly but remain unmotivated to do their best, giving them a raise won’t fix the root problems anyway. “You can pay someone a lot more and get them to stick around longer than maybe they would have but ultimately, it’s usually not enough for people to stay in a job they dislike,” she says.

Of course, it’s not all about salary. To look at the broader picture, compensation includes salary plus everything else a company is spending on its employees, she says. That means bonuses, vacation time, insurance, retirement plans as well as other, more difficult to quantify things like, accommodating a flexible schedule, free health screenings or even gym memberships.

Employee evaluations are a potential stumbling block in motivating employees. It can be very frustrating for employees when they don’t have a clear idea of how to reach for promotions or obtain raises, she says. One avenue for this is a review, which looks back over the past six months or year. That’s important, but Infantino says an individual development plan (IDP) is actually more useful because it’s forward looking. An IDP plots what the employee wants to reach for and how their manager can help them get there. “You’re putting power in your employee’s hands,” she says. “Autonomy is actually one of the big motivators for people, so this a way you can give people info they need to know to affect change in their careers.”

Companies with a poor evaluation process can actually demotivate their employees because it can feel useless. P4 Consulting has worked with some ethanol production companies that struggled in this area. “Part of why they weren’t strong was that they didn’t have job descriptions that included skills and knowledge for each level,” she said.  “If that’s not outlined well, what am I getting evaluated against? It’s not clear. People don’t know how to get better and advance.”

 Change starts at the top. The boards of ethanol production companies can manage by objective, McDermott says, by setting strategic objectives for the business and putting a performance compensation system in place to reward staff for reaching those objectives. Company profitability-based compensation can also be a piece of a compensation programs, although it shouldn’t be the only piece. Financial performance is affected by some factors out of employees’ control, such as commodity prices. Things employees can influence, such as operational and cost improvement, should be rewarded as well. “A successful compensation program tries to find a way to get company staff to perform well in all areas,” he says. 

Infantino  talked about some of the same concepts in terms of company culture. All employees need to have a clear understanding of what the company values are and what behaviors correspond to those values. That means sitting down and establishing what those values are. Many things, including job descriptions, can be aligned to company values.  P4 Consulting has helped companies come up with job descriptions by setting up cross-functional task forces, made up of employees from different departments. “People are less likely to push back and reject something if they have been involved in the creation,” she says.

Author: Holly Jessen
Managing Editor, Ethanol Producer Magazine