The Problem When You Have a Pay-For-Pulse Compensation Strategy

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Picture the scene:

Your company doesn’t have enough money in the annual merit spend budget to grant more than an average  2 percent increase to employees, so the powers that be decide “let’s give everyone a flat 2 percent increase and call it a day.

Has this happened to you? The practice is what some would call a “pay-for-pulse” strategy, where if you haven’t been fired on the date of the scheduled increase, then you’re going to get a raise.

Every warm body who occupies a chair at that time will receive an increase — just because.

Why some managers like this plan

Individual employee performance isn’t taken into account, so the high performers will receive the same 2 percent increase as Joe Average. And as to Bob-the-Bumbler? He’ll receive the same 2 percent as well.

And everyone is supposed to be happy. Really.

But it happens. So, why is it that some managers think that such a giveaway tactic is a great idea, anyway?

  • It’s easy to communicate and administer. Picture someone pushing an EASY button and all the changes are made, in an instant.
  • You don’t have to worry about performance reviews. Oh, some organizations may go through the motions, but essentially the goal is to have a paperless exercise.
  • Managers won’t have to agonize over performance ratings. Everybody receives the same treatment and no one has to be given a negative review, because let’s face it, no manager looks forward to that conversation.
  • Some advocates will actually convince themselves that they’re being fair to everyone. They’re not discriminating, not pitting one group against another. We all work for the same company, right? This same vein of thought believes that everyone on the receiving end will thank them.
  • Did I mention that it’s quick and easy to do? No fuss, no muss.

A great deal for Joe Average worker

Of course, this isn’t a tactic that you’d see in a pay-for-performance culture. And, certainly not where management is trying to develop the oft-desired “high performance” culture.

In some ways this tactic actually encourages and rewards the opposite, as it’s the lesser performers who consider this a grand idea. And why shouldn’t they? It’s a great deal for Joe Average and an even better one for Bob-the-Bumbler.

But, watch the exit door for the high performers, because they won’t be sticking around for long once they feel that they’re not being recognized or rewarded. But don’t worry — Joe and Bob will stay with you. They may never leave.

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So think a little as you consider what it is that you’re really intending to recognize and encourage with your discretionary reward dollars. If it’s simply tenure, if it’s saying thanks to someone for sitting in a chair for another year, then I suspect you’re wasting a lot of money. And, you won’t get a lot of improved performance for your efforts.

You’d be better served rewarding what someone has contributed to the organization (performance) while they were occupying that chair. Unless of course you think that every warm body has a right to an annual increase — regardless.

Focusing the reward to do the most good

So take your choice; pay-for-performance or pay-for-pulse? What if it was your money being taken out of your pocket?

Broad based reward strategies don’t often focus the reward where it will do the most good, where it will benefit the company the most.

Instead, picture the fellow opening a window and tossing out dollar bills into the wind, all the while chanting, “I hope this helps.

This was originally published at the Compensation Café blog, where you can find a daily dose of caffeinated conversation on everything compensation.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR consulting firms as a contributing consultant. Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation. He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a clowder of cats.

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