Alternative Pay Raises: Cash is No Longer King

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Erica Nesbit

As corporations struggle to navigate the current economic storm, human resources compensation professionals are challenged with developing reward philosophies that support corporate strategy and contain costs. A viable, long-term solution to a leaner total rewards philosophy must be identified and must address the entire employee population rather than targeting a subset. Regardless of the solution, employees should be able to see a clear connection between their new non/low-cash compensation alternatives and the potential for future cash compensation increases.


At the end of the day, managers need a plan to reward their employees.

Let’s face it, nothing is more rewarding than a big bonus check or a big raise. An increase in cash compensation, specifically salary, is a perpetuating reward that acknowledges past performance and acts as a bi-weekly reminder that an employee’s effort and contributions are appreciated. When the cash available for employee rewards is gone, or no longer available in meaningful amounts, employees may feel unrewarded and underappreciated for their contributions. While past reward vehicles could have included upscale lunches, sporting event tickets or a company paid cell phone, the budgets associated with these items have dwindled. Human resources professionals must dig deep to find meaningful alternatives to facilitate management’s ability to reward employees.

While a title change to something more impressive is considered as a reward by some, title escalation, or title creep, is not a viable long-term solution. A more impressive title will inevitably give the false impression that a higher rate of compensation is required, even though the employee’s job functions and accountability have not changed. A "wait-and-see approach" is another option for addressing the current cash constraints in an uncertain economy. However, this approach will not meet management’s needs to reward employees in a timely manner and is consequently ineffective. Although a "wait-and-see approach" does give human resources teams the opportunity to evaluate what peer companies are doing, compensation philosophy changes that are occurring now will not be available in market surveys until the middle of 2010. The "wait-and-see approach" consequently may frustrate management and could be interpreted as human resources inability to support the needs of the business. A viable solution to reward employees on a leaner budget must be identified now.

During the process of identifying a lean reward philosophy human resources professionals must ensure that the entire employee population is considered. Given that most reward systems have a performance component, it is important to ensure that all performance levels are addressed. Although high-potential employees typically attract more opportunities for rewards, a successful company requires commitment from all employees despite their level of performance. Day-to-day job functions are typically performed by moderate performers and are critical to the ongoing success of an organization. If moderate performers are overlooked in a reward philosophy, they will become increasingly disenfranchised and leave. If candidates are not available to readily fill these vacated positions the work load may need to be diverted to the high-potential employee population. Accordingly, these high-potential employees will be less committed to their organization if their projects and policy development activities are replaced with administrative day-to-day tasks. Poor performers should be considered for a reward; however, the most appropriate course of action for these employees, is to find a function that is better suited to their particular skill set in order to maximize the corporations productivity. Consequently all levels of performance must be addressed as an organization develops a new reward philosophy.

As our finance counterparts know, cash is king. Consequently, any cash alternative rewards presented to employees must clearly translate into future cash compensation. Cash alternative rewards should clearly develop into a compensable factor such as increased education or increased experience. Larger organizations can address these compensable factors by encouraging employees to utilize tuition reimbursement programs. However, tuition reimbursement programs are not a solution for organizations trying to contain costs. A less costly alternative to tuition reimbursement is to encourage employees to develop a social network by encouraging employees to attend local association meetings and online forums. Although inevitably the additional knowledge, skills and experience obtained by these employees may translate into future pay increases, the organization obtains an improvement in efficiency and an increase in the number of available industry experts. A fair trade when compared to the requested increases that result from title escalation.

An employee’s time is also a valuable commodity that should be utilized as a reward. For those managers with employees working non-standard hours, premium or preferred work schedules should be identified and allocated to employees in recognition of contribution, work ethic and/or performance. Exempt employees can also be rewarded by leveraging flexible start times. Often, the most cost effective and important rewards are overlooked by managers. These simple rewards include elevating an employee’s development through mentoring and regular performance evaluations. Human resources representatives should also not discount the impact of acknowledging a job well done and should actively encourage managers to send regular e-mails to employees and executives acknowledging examples of dedication and commitment. These simple actions, when positioned appropriately, will not only act as cash alternative rewards but can also instill corporate dedication and commitment.

A successful organization relies on the dedication and commitment of employees. As human resources professionals, our responsibility is to manage employee expectations and facilitate organization change by demonstrating the impact and value of a positive supportive environment.