Pay is a Brutal Disengager and Demotivator

Let's start by getting the elephant out in the open. Pay is never a positive force on engagement. Life would be easier if it were, but you just can't buy people like that—not many people anyway. You can never create engagement by paying people more. There can be a fleeting motivational and feel‐good factor, but it dissipates as fast as the ink dries on the pay review letter. However, you can destroy or disable engagement in a blink of an eye using pay, although not quite in the way you might think.

If we think back to our Chapter 1 definition of what an engaged employee is, then it's clear that paying someone more money can have no positive or lasting impact on their buy‐in to the mission, understanding of how their role contributes to that mission, and urge to see the company win and succeed. Pay, in isolation, cannot buy engagement; it never did and never will.

The Monkey and the Cucumber

Probably everything you need to know about how people think about and act in terms of pay is shown in “The Monkey and the Cucumber” experiment.¹

“The Monkey and the Cucumber” experiment shows that capuchin monkeys have the same aversion to inequity as humans. In this 4‐minute video, two monkeys are trained to hand over pebbles in exchange for a piece of cucumber. Both do so quite happily, until one monkey is given a grape: a sweeter, higher‐value treat. The other monkey, who seconds ago was perfectly happy with the cucumber, reacts immediately and dramatically by throwing the cucumber back at the researcher and rattling the side of the cage to voice her anger at the unfairness of this inequity.

I've seen this happen first‐hand many times. You have someone totally engaged—loving their job; completely happy with pay, benefits and everything else—and then the next day, disconnected, feeling cheated, and believing the company doesn't value them or recognize their contributions. What happened between these two days? A recruiter saying, “Hey, it's not fair what they're paying you. You're really worth twice that.” Often the job being referred to isn't remotely comparable, but it still creates a strong enough sense of unfairness to seriously unsettle someone.

There are data showing this link. Kronos and Future Workplace surveyed 614 US HR professionals in a study on employee burnout and found that “unfair compensation” was the top contributor to stress, 25% ahead of “unreasonable workload” and “too much after‐hours work.”² It seems that unfairness creates an emotional response that is hard to ignore.

Incentives and Performance‐related Pay Can Make It Worse

Among the biggest contributors to disengagement are incentives and performance‐related pay. As the monkey and the cucumber taught us, when one employee thinks they deserve more, you'll inevitably wind up with more and more parts of the business demanding incentives. The problem is that this leads to management “hearing the noise” and thinking their people will work harder if they're incentivized, but it's actually an issue of fairness and equity. Let's look at a typical sales team as a common example.

Most sales teams are paid on a bonus or commission arrangement, despite some good bodies of evidence that actually only some salespeople are coin‐operated in the way we think they all are.³

This works fine until someone in the service team who handles client renewals feels it's unfair because they don't get a commission. We fix that by inventing a commission program for them, which works fine until a product manager thinks it's unfair because they get nothing even though they created the product.

We fix that by giving the product manager some sort of performance target for product sales—and another slice of commission. This works until … well, you get the idea. The vicious circle continues, with more and more incentive programs being created, each one adding to the inequity rather than solving it.

The irony of it all is that 90% of the people involved weren't actually motivated by money anyway: They didn't need the extrinsic reward. They were motivated to demand a correction to the unfairness—the inequity of being given a cucumber when someone next to them was given a grape. The real tragedy is that there is significant evidence that bringing in an extrinsic reward actually destroys the existing intrinsic drivers.⁴

Put Benefits Complexity on the Shelf

Benefits are only valuable if they are known about, understood and valued by employees.

The vast majority of companies do much better at procuring new benefits than they do in communicating them and making them accessible. They then wonder why only 5% of their employees actually uses them or why benefits are not valued.

Organizations have to change their approach to benefit communication completely if they're going to engage with their workforces, especially their millennials. HR has to keep in mind that employees struggle to cope with the complexity, concepts and terminology used in benefit plans, especially ones such as retirement and insurance.

Companies struggle with communicating benefits, but not due to a lack of care or prioritization. The problem is underestimating the sheer scale of the task when some benefits are so incredibly complex. Reducing complexity in the benefits themselves, which means biting the bullet and asking whether the complexity is really necessary, is actually an essential step to making effective benefits communications even possible.

Rebels are turning benefits communication into things people really want to receive, rather than want to avoid. They leverage the marketing department, external agencies and social media to sell benefits like the company sells products: Focusing on simple and engaging key messages.

Key Outcomes Rebels Strive for

Getting pay & benefits right is hugely important because it's a key underpinning element to the Engagement Bridge™.

Key Rebel Behaviors

Rebels with high‐performing cultures behave differently from normal companies in the following ways.

1. Prioritize fairness in pay

   Rebels tackle pay fairness head on by using pay budgets to address pay inconsistencies, making sure salaries are fair and can be justified. They find ways to move to a more open and transparent approach to pay, whether it's starting by sharing pay philosophies, pay ranges or a fully transparent approach of sharing salaries. Remember that regardless of company policy, people do talk and share, so be ready to deal with this proactively.

2. Replace incentive pay with company‐wide programs

   Rebels replace team and role‐specific incentives with better management, coaching and development. They design jobs where people are accountable and can see their results outside of a pay plan. They lean strongly on profit sharing and all‐staff programs as a way of creating ownership and turning employees into stakeholders, deeply connected to the financial success of the business.

3. Use benefits as a cultural differentiator

   Rebels match their peers on core benefits—but then go much further, looking for creative opportunities to show their personalities and that they're different. They're unafraid to invent benefits themselves and are unconstrained by what's available to purchase from third parties. They build on this unique provision through other parts of the Bridge™, often connecting benefits to mission, values and recognition.

4. Use benefits to maximize value

   Rebels understand that good benefits outperform cash in terms of value for money, visibility and in the cultural statement that they make. They see pay & benefits as a single budget, allowing money to flow between them, understanding that when benefits are chosen well and implemented well, they amplify employer money.

5. Develop a culture of benefits flexibility

   Rebels stand out by creating a culture that allows iteration, review and change. Established HR thinking is that it is really hard to withdraw benefits after they've been launched. Rebels overcome with techniques like branding benefits as “Our benefits for this year,” involving employees in feedback and review, sharing uptake statistics openly, and making changes—often while explaining what was swapped for what and why.

Making a Start

Situation

Guy Hayward, Goodman Masson's CEO, set himself and his financial recruitment business a lofty strategic goal: To treat their people not just well, but “better than any other business in the UK.” Recognizing that a key component for achieving this was through benefits, they set out to develop a package that would work for their 140‐strong, mainly millennial, workforce. The result was a benefits package that's won numerous awards; a company that's won “Best Recruitment Company to Work For” and “Great Place to Work” honors; and increased profits, engagement and retention.

Play

The package Goodman Masson put in place is called “Benefits Boutique”, and it contains a varied and unique offering. It was developed by “reflecting on and considering the modern‐day challenges that our people face, looking at how each benefit would fit their lifestyle and helping to improve their standard of living,” says Hayward.

An example is the mortgage fund, which allows employees to build up a deposit for a first property. Employees deposit a portion of their salary/bonus over a three‐year period and at the end, the company adds an additional 50% of salary and 33% for bonus contributions made. Roughly 25% of employees have joined the fund, and three have even bought their first properties. “There's a different bond and feel toward Goodman Masson as an employer,” says Andrew Michael, Managing Director. “Even if an employee is not in the fund, knowing they work for an organization that is that giving and is that generous creates a different feel.”

Other examples are loan programs, which include a student loan, a home improvement loan, a new‐parent loan and even an exotic holiday loan. For all, the company pays the upfront costs, with the employee repaying through payroll deductions spread over 12 to 18 months. This is highly valued by employees because it means they can do things they may not have been able to afford, or save money by not having to take out high‐interest loans.

The development of this package has been a gradual process, with new elements being offered over the years, based on a constant review of asking “What else can we do?” “The overarching aim is finding ways to take the financial strain and pressure off the shoulders of our employees, supporting them in leading more productive and rewarding lives both in and out of the workplace,” says Michael.

Situation

At PhlexGlobal, a global provider of electronic document management systems and services to the clinical research sector, what employees do is critical to the successful creation of new drugs. However, since it is in a highly regulated industry, much of the work for many of the staff is routine and repetitive. PhlexGlobal wanted to find ways to let its workforce know they were valued, along with new ways to engage employees.

Play

PhlexGlobal's approach to engagement is to put in place what I'd call “surprise benefits”—those that no one expects, but when provided, are hugely engaging. One example is having a local ice cream van park at the office to surprise and delight employees with free ice cream. Many companies give out free ice cream, either in the cafeterias or buying boxes to hand out on a hot day, but what makes this special is that it was unexpected, and it turned an inexpensive ice cream into a memorable experience. As the van arrived, the musical chimes put a smile on faces and everyone had fun hanging outside with colleagues.

Other examples used from time to time include scattering Easter eggs on desks from the “Easter Bunny” or giving employees a half‐day off for some much‐needed holiday shopping. As Stella Donoghue, previous Managing Director at PhlexGlobal, said, “You don't need to spend a lot of money or do something big to engage your workforce. We've had great results by putting a bit of fun and surprise in what we've done. It's not always what you do, but how you do it, that matters.”

Situation

Basecamp produces software that allows a company to bring multiple projects together into one project management tool. Doing this acts as one central source of truth and makes things clear so everyone in the company knows what to do.

Basecamp's pay model has a similar aim of adding clarity and truths to an area that is surrounded in mystery in many companies. According to Jason Fried, co‐founder and CEO, “Hiring and training people is not only expensive, but draining. All that energy could go into making better products with people you've kept happy for the long term by being fair and transparent about pay & benefits. There's a fountain of happiness and productivity in working with a stable crew. I'm baffled such a competitive advantage isn't more diligently sought.”

Play

Basecamp's approach to being fair and transparent with pay has many levels, which is what makes it both unique and effective. Starting with base pay, there are no negotiated salaries or pay raises. Everyone in the same role at the same level is paid the same salary. “Equal work, equal pay,” says Fried. This is true regardless of where employees work in the US, with target pay set at the top 5% of its Chicago headquarter market rates; whether employees live in California, Alaska or Illinois, they're paid the same salary. “This means everyone has the freedom to pick where they want to live, with no penalty for relocating to a cheaper cost‐of‐living area. We encourage remote working and have many employees who've lived all over while continuing to work for Basecamp,” says Fried.

The next area where Basecamp displays its unique approach is with bonuses, which they don't pay, but instead are built into base salaries. “We used to pay bonuses many years ago, but found they were quickly treated as expected salary anyway,” says Fried. Instead, a profit‐growth sharing program shares 25% of annual total profit growth with employees, which they believe sets fewer expectations.

Finally, there are no stock options at Basecamp, but that's only because they never intend to sell the company. However, being fair and transparent again, they've vowed to employees that should they sell the company, they'll distribute 5% of the proceeds to all current employees.

This approach to pay has helped Basecamp maintain an engaged and stable workforce with an average tenure of five years in an industry where companies are lucky to have employees stay for two years. Basecamp's approach shows engagement comes from fairness and respect, not sky‐high salaries or millionaire stock options.

Situation

Ricardo Semler, previous CEO of Semler, a Brazilian industrial machinery company, is famous for his unorthodox approach to running a business. In his book Maverick, he explains the journey taken from moving the business he took over from his father that was run traditionally to one run in a participative way; or, as he says in his book, “A more humane, trusting, productive, exhilarating, and, in every sense, rewarding way.”

This participative approach is evident in the way salaries are set and profits are distributed through the company's profit‐sharing program, with employees playing an active role. These approaches, and many others relating to programs and policies, continue to be radical 25 years after the book was published. Were they successful? Based on Semler's new approach, the company had one of the highest growth rates in Brazil, despite large multinationals entering the market and savage recessions.

Play

During the first years of Semler's journey into participative management, the company involved employees in a variety of decisions, setting the direction and foundation for the approaches to pay to follow. The first involved their profit‐sharing plan: The company created one that employees not only understood but controlled, letting the beneficiaries make the decisions. This included negotiating with employees on how much of the profits would be shared, educating them on financials so numbers wouldn't be picked out of the air. They also worked with employees to decide how profits would be divided, letting each location vote on how this was done.

Next came a “self‐set” pay approach, letting nearly 25% of the employees set their own salaries. The process begins with employees completing an evaluation form, helping them focus on their roles and their value. In addition, before suggesting what they believe they should be paid, employees are asked to consider four criteria: What they think they could make elsewhere, what others with similar responsibilities and skills make at Semler, what friends with similar backgrounds make, and how much money they need to live. To support this process, the company shares salaries, as well as pay surveys, with employees.

These non‐traditional approaches—ones that challenge our ways of doing business—have helped Semler succeed in good times and bad. They've eliminated complaints about pay, and have shown other companies a different, more inclusive way of running a company.

Situation

Like many companies, McDonald's was looking for ways to reward outstanding performance by using incentives. As a long‐standing sponsor of the FIFA World Cup, they decided to use the sporting event as a way to do this with its employees, which at the time numbered more than 85,000, spread across 1,200 restaurants. The incentive program combined a love of sport with a love of customer service and, as the results show, delivered on “scoring” with both groups.

Play

The incentive program, called “Road to Rio”, was based on that year's World Cup location, and incentivized the top 5% of restaurants based on customer satisfaction and speed of service rankings over the three months leading up to the event. Each of these top restaurants received a hamper full of chocolate for employees to share, and was then entered into a draw to win one of 11 trips to the World Cup for the restaurant manager and a cash prize to be used for an employee social event at the restaurant.

Employees weren't the only winners: The competition was designed by the National Operations team to boost the speed of service while still delivering a great customer experience. The average service time in restaurants improved by more than 6 seconds compared to the previous year, and the customer satisfaction score also improved.

According to Neal Blackshire, UK Reward Manager at the time, “The combined improvement in satisfaction and speed means that we delivered a great customer experience to an additional 24,000 customers every day. This was a marked improvement and helped to create a real buzz in the restaurants. We were delighted to be able to give our employees the opportunity to share the excitement of the World Cup, and for our winners, provide a once‐in‐a‐lifetime experience. We know that if our employees are engaged and motivated, this will positively impact our customers' experience.”

The UK McDonald's also used its global sponsorship of the Olympics to run similar incentive programs in the run‐up to both the London 2012 and Rio 2016 Summer Olympic Games. When an incentive scheme works, it's well worth repeating!

Situation

It was July 2016, and BrewDog, an independent Scottish brewery and pub chain, had just rolled out its Unicorn Fund, an all‐employee profit‐sharing plan.⁷ According to Allison Green, People Director at BrewDog, “One of the outcomes of the plan was that employees were behaving more like owners, which meant new ideas started rolling in.” One of these new ideas came from an employee known only as Squidy, who runs BrewDog's first bar in Scotland. His question was, “For a company so canine‐obsessed, why don't we support employees when they get a new dog? They get time off for a new baby, why not a new dog?”

So that's exactly what BrewDog did, introducing a “pawternity” policy, a pooch‐based benefit for all staff who get a new dog. And why not? The word “dog” is in the company name, it was founded by two men and a dog, and they have 50 company dogs at their locations around the world.

“Here at BrewDog, we care about many things, but have two main focuses above all others: our beer and our people. But we also just really, really like dogs, so we thought we would combine all three and let our people bring their four‐legged friends to work at the brewery and our offices, and take it one step further by offering this latest awesome—or should that be pawesome?—staff perk,” says Green.

Play

BrewDog's pawternity benefit, which gives employees one week of fully paid leave, started out as puppy parental leave. However, it's evolved to include anything from a new pup to an unsettled rescue dog—supporting nervy canines and their owners alike, in those all‐important first few days of one of the greatest relationships a person can have.

“This benefit has attracted an insane amount of media attention, going absolutely viral. Understandable, since we all love dogs and we all love innovative ideas. But it's important to point out that this wasn't done in isolation; it was part of the bigger picture. We put this benefit in place because it fit in with our company culture and our overall engagement strategy,” says Green. It wasn't just a “shiny benefit,” as Green calls them, but something that shows employees at BrewDog that they (and their dogs) matter to the business.

What became of Squidy? As recognition for his great idea, the company flew him out to the launch of BrewDog's newest bar in Columbus, Ohio. He already has a pup, so he's not taking any time off, but he did say he's tempted to get a second!

Situation

Citation, an HR legal advice company with an office‐based workforce, faced a challenge. The company was rolling out eight new benefits, ranging from a day off for employees' birthdays to wedding and grandparents' leave, to buying and selling days off. How would the team do it in a way that every benefit was both understood and valued? This was an important issue to Linda Jodrell,⁸ HR Director. “If you don't message it right, you may as well throw the money down the drain,” she says.

The good news was that Citation already had a recognizable benefits brand called “Dave” (which stands for Discounts and Various Exclusives), with a cartoon character of the same name. But how would they make employees realize that Dave had changed with the addition of these new benefits?

They did it by creating an innovative and engaging communications campaign, using a clever teaser approach held together with strong branding. It was highly successful, with 90% of employees engaging with the campaign by registering. It also contributed to a doubling of employee engagement scores, and Citation receiving a classification of “extraordinary” in the UK's Sunday Times Top 100 Employers list.

Play

Citation's communication campaign was centered around Dave getting a girlfriend, and was branded as “Introducing Miss Benefit.” Jodrell said they created her for a bit of fun, but also to show how Dave was moving into a relationship in the same way that the new benefits were moving into a relationship with the existing ones. Doing this also created a new power couple—one that would increase the overall impact of Citation's communication.

They used a teaser approach to create a sense of excitement, anticipation and interest. On day one, the teaser message was, “After being on his own for the past two years, Dave has decided he would like a lady friend. Before he puts himself out there, he is going to update his image.” On the following days, it showed Dave working out, joining a dating site and getting new glasses.

Once properly “teased,” employees received gift boxes to bring it all together. Each box contained a document explaining the new benefits, along with chocolates and an invitation to a conference where the company would explain the new benefits. “We wanted to surprise and delight employees, sending the message that the company cared about them,” says Jodrell.

Situation

Illuminate Education is the third company Lane Rankin (CEO and President) has started, and he decided that this time around, he was going to do things differently. “I wanted to learn from what I did right and wrong with my previous companies, as well as bring lessons learned from being a teacher, specifically those around engagement,” says Rankin.

One lesson or objective was to empower his 200 employees to “create new opportunities for the company while solving problems for our clients,” says Rankin. This meant finding ways to create a sense of ownership and empowerment.

To help, Rankin put an employee share plan in place that has shared $60 million with employees over the last eight years. What the company has gotten in return is growing financials, from $150k to more than $34m in seven years, as well as something that Rankin says is their most valued accomplishment: employee loyalty. They've only lost three employees since they started the company, so Rankin must be doing things right.

Play

Illuminate's share plan has created a sense of ownership by making all employees not just shareholders, but major shareholders in the company. The profit‐sharing plan has rewarded employees handsomely at all levels in the company.

It's paid out a smashing 50% of profits, which is significantly above payouts from most profit‐sharing plans, where a higher percentage is saved for the CEO and his or her executives. “It's not about me, Lane, the owner. Rather, it's us in it together,” Rankin says. “But you have to put your money where your mouth is.” And that's exactly what they did.

Situation

3M is a company that's normally very traditional, doing things in what could be described as a “corporate way.” But with a focus on measuring employee engagement and a desire to make improvements in the area, the Australian Managing Director felt it needed to lighten things up a bit and show the workforce that it was a fun place to work. So, on the heels of introducing two new benefits—a charitable giving program and a leisure and lifestyle benefit—the HR team decided to hold an expo in partnership with their benefit providers at their head office, bringing a bit of fun and, at the same time, helping employees better understand and appreciate their new and existing benefits.

Play

The idea of the expo came from Sebreena Cronin, Talent Development Manager, who frequently takes her young children to school fairs, and thought this format would work well to help lift employee engagement in a fun way. Like a fair, employees were given a ticket to enter the expo, with some even winning a lucky door prize. To create buzz, 3M hired a balloon man who Cronin had seen at a fair, who made elaborate balloon designs. The fun designs enticed employees to want to come and see what all the fun was about, and also helped create conversations throughout the day as they took their balloon masterpieces back to their desks.

The expo consisted of booths run by benefit providers, where employees could stop by and learn more about each benefit. Examples included:

• A booth where employees could learn about discounted movie tickets, and where boxes of popcorn were handed out.
• A booth where employees could learn about discounted bowling experiences, with a mini bowling alley where employees could try and knock down the pins to go into a draw to win a prize.
• A booth where a leasing company answered questions for employees about their individual circumstances, giving away promotional pens, notepads and balloons.
• A booth run by 3M's Corporate Health partner, which offered health checks for employees, held live nutritious cooking demonstrations and ran “healthy food” competitions. Employees could also try out goggles that mimicked the effect on vision of consuming alcohol to a 0.05 reading, and then trying to “walk the line,” represented by tape on the floor.

The expo was a huge success, in fact so much so that the other 11 offices across Australia asked that they be held at their sites. It's too soon to tell how it's affected overall engagement, but it certainly helped raise awareness of the two new benefits as well as existing ones. “The expo was a great way to showcase some wonderful offerings to employees in a very fun way. Seeing smiles all over the office all day due to the experience, which is still talked about today, was certainly a highlight!”, says Cronin.

Situation

Bamboo HR, an organization that creates HR software solutions, had a traditional sales commission plan, based on targets, and paid out when sales were made. That was until Jeff Adams⁹ joined the company as CRO, moving from a company that had achieved positive results doing something unconventional: Doing away with sales commissions. Adams had seen first‐hand the impact of taking commission off the table, and when he shared this story with the company's founders they were interested to see what it could do for their business and their sales team. And so, in February 2017, Bamboo HR followed suit, and decided to eliminate sales commissions.

It's still early days, but they've seen positive results of this change. “The willingness of sales reps to help each other has improved as the normal friction linked to commissions has gone away. This is important as the company is in hyper growth, so working together and collaborating is critical to be able to keep up with the pace,” says Adams.

Play

The team knew that removing sales commissions was a drastic and emotional change, so to ensure its success, they created a comprehensive approach. The first involved determining the “right” salary, something that would be seen as fair and thus motivational for employees. They looked at a variety of factors such as tenure, job level, commissions paid for the previous two years and projected commission for the following year to get the formula right.

Next, the team identified the importance of communicating the change, so instead of rolling out in a group meeting, Adams had one‐to‐one meetings with each sales rep to explain why this was happening, the new way of thinking and how it would personally affect them. This got all of the questions out of the way so there were no clouds hanging over the change.

And finally, to introduce a way to celebrate hitting individual metrics, the team created a recognition program called “Team on Fire.” Leadership worked directly with the sales team to develop the program and align the reward experiences with other experiential rewards awarded at the company.

“We don't believe our salespeople need the extrinsic motivation of a commission plan. They work just as hard now, driven by their intrinsic motivation to do what's right for the business, not having to worry about the complications and confusions created by commission plan design. They collaborate to do what's in the best interest for the business, having more clarity and focus to be able to serve the customer,” says Adams.