Well, I guess it's official, the economic crisis is here. After several years of maybe it will, maybe it won't, it did. Markets have tumbled. Iconic companies have collapsed. The entire gulf coast has been devastated by hurricanes. Nearly 10 million Americans are out of work. We are spending $275 million a day on a war we can't win. The banks have stopped lending. The government is bailing as fast as it can. We may soon have an ex-beauty queen with more experience in the PTA than in politics a heartbeat from the Presidency. And there is no end in sight.
In the midst of this turmoil and uncertainty, the year-end is approaching and companies will soon face a familiar question -- how much do we raise salaries? It happens every year at this time as fall approaches -- like migrating geese in search of disappearing wetlands, or tired salmon searching for a healthy stream in which to spawn, many companies, in the wake of economic collapse, are in danger of extinction.
Each of the four major economic downturns in the last 30 years (one in the early 80's tied to the savings and loan crisis, another in the early 90's tied to a drop in the housing prices, the next in the early 2000's tied to the dot-com bust, and now this one tied to everything) have cleansed the corporate landscape of weak and vulnerable companies. And this latest one, like hurricane Ike, is not only packing high winds, it promises to wreak its devastation over a wide area. So what should you do as the water level rises and you are standing on your tippy, tippy toes trying to keep your nose above water? Well, I tell you what you shouldn't do -- raise salaries.
Raising salaries in an economic climate like this is like wading into deeper water to avoid drowning. And it makes about as much sense. Now is the time to try something different; something that has always made good sense, and makes even better sense now. Freeze base salaries, and move boldly into incentives FOR EVERY EMPLOYEE.
I have been talking for a while about the seemingly endless problems with base salaries: they are poor motivators; they are inflationary; they are perceived as an entitlement; they are elitist; they are difficult to validate in the marketplace; they are never going to be the best way for employees to get ahead financially; and they are the result of old, tired, worn out thinking. It's time for bold strokes.
And the bold stroke that I am advocating is incentives FOR EVERY EMPLOYEE. Traditionally, incentives have been the domain of sales people, executives and managers. That is fine, as far as it goes (a striking number of businesses don't even use incentives for these groups) but it needs to go much farther. It needs to include everyone. It is astonishing how many foolish things have become commonplace when it comes to pay -- yet the one thing that really can increase performance and help employees earn significant money is considered optional, a matter of taste.
The argument against incentives for every employee usually comes down to laziness. "We can't develop goals for every employee, that would take too long. It would be too much work." What is more important than clarifying for every employee what s/he needs to produce, and what s/he will earn when they produce it? I would argue that if managers and HR professionals aren't doing this, they aren't doing the single most important thing they can do to contribute to the success of the business. It just doesn't make sense any more to run from the work and responsibility of doing the right thing.
By creating individual incentives for each employee, companies will enjoy the following benefits:
- They will only pay for the results they receive. No results, no pay.
- Employees will be more productive when they know what is expected of them and what they will get if they do it.
- There will be a much greater focus on critical business outcomes.
- Teamwork and cooperation will improve when multiple employees share a common goal.
- Unlike base salaries, if you accidentally pay an incentive for the wrong reasons, you get to start over next year and don't have to keep paying it forever.
- Employees will take more responsibility for their own success.
- Employees can earn a lot more money and companies can afford to pay it because they are only paying those who deserve it.
- Companies can attract higher caliber employees who are risk-takers and confident in their own success.
- Passive employees who don't believe in their abilities or don't trust management can join the competition and drag them down.
Is it a lot of work? Sure. But it has been said that "the trouble with opportunity is that it comes disguised as hard work." Fortunately, most hard work gets easier once everything is set up right and you figure out how to do it. So now is the time to begin. That way, in ten years when everyone else is still wringing their hands and debating what to do, you will be way out in front.