staffing solutions
Pop Quiz
Test your I.Q. for staff compensation.
BY BOB LEVOY, O.D.

True or False? 1. To maintain staff morale, implement raises across the board. 2. Conduct salary and performance reviews separately. 3. The key to attracting and retaining loyal employees is to provide them with a good compensation and benefits package.

1) FALSE. Implementing raises across the board, known as the "peanut butter approach," can make high-performing employees feel slighted while the others, in essence, receive an unintended message that their salary is dependent on merely "showing up." Provide an incentive that is based truly on differentiated performance – not politics, self-promotion or the peanut butter strategy.

"[Providing an incentive that is truly based on differentiated performance] implies an organized way of deciding whether performance has improved," says Jeffrey Denning, a consultant with the Practice Performance Group, a practice management consulting firm in La Jolla, Calif. "Employees who are good workers this year but who aren't materially more valuable than last year, shouldn't be earning much more this year. And it may be necessary to bypass raises for employees who are being paid above the market rate."

2) TRUE. Combining the salary review and performance review compels you to justify a salary increase (or lack thereof) in terms of the performance evaluation — something that can be difficult when other factors enter into the decision-making process. To keep this problem from developing, conduct the salary review separately. The primary advantage: During the performance review, the discussion can be about performance only. When you conduct the salary review later, you can discuss more openly the other factors that determine a salary increase.

If you set clear, agreed-upon goals and benchmarks during performance reviews and have follow up discussions with each employee during the year, salary reviews should simply be a wrap-up with no surprises. Basically, the performance review is an assessment of how well employees met their goals, demonstrated new skills and what raises — if any — are appropriate for these accomplishments.

3) FALSE. "More than ever, they [the old tools for rewarding employees with competitive wages, benefits and incentives] are just the price of entry for hiring or retaining the employees you value," says Dianne Michonski Durkin, author of The Loyalty Advantage: Essential Steps To Energize Your Company, Your Customers, Your Brand. If you rely solely on a compensation and benefits package to attract and retain employees, you'll likely be caught in a price war for talent. When your only leverage is financial, you can either choose to outbid your competitor, or let a good employee choose another home."

So, how can you reward good performance without cash? Ask Price Pritchett and Ron Pound, co-authors of Team Construction: Building a High Performance Work Group During Change.

"The intangible rewards you have to offer are limitless," they say. "Words of encouragement, compliments, empathy and understanding and a note of appreciation; stopping to share a cup of coffee, or taking an employee to lunch; bigger titles or special assignments; more decision-making authority; a sincere thank you; asking about the family, celebrating small victories; soliciting opinions and suggestions. Listening . . . really listening; a mere smile, or calling the person by name; a warm handshake or pat on the back; taking the person into your confidence; even asking an employee for help – 'needing' the person – is gratifying because it validates one's worth."

Psychological paychecks have an intrinsic value that hard currency can never touch, these authors say.