Darryl Stewart
By Darryl Stewart
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A doodle of a happy piggybank and a sac of money

Six important rules for dealing with employee pay

Employee compensation is a tricky matter. Scores of books and thousands of studies have been written on the relationship between employee performance and pay. I have tried to consolidate some of the research results along with my own experiences into what I hope are some helpful tips.

  1. Don’t ask your employees if they deserve a raise or how much they think they should make

If you ask this question and don’t take action on the answer, you could create dis-engagement where none existed before. Research shows that your worst performers will want more of a raise than your great performers. You will, therefore, get no useful information about how to hand out raises or to set your pay scales by asking employees directly.

  1. Don’t pay extra for that small extra duty you had to add

In very limited situations – like piece work and commissioned sales – pay for specific work can increase focus and engagement. Otherwise, paying someone extra for an additional duty will turn what is intended as a bonus into a bribe and take the enjoyment out of the job. Giving someone a little extra pay to recognize them for cleaning up the files once a month is a bad idea. Instead, assign the task to an employee who likes to organize things.

  1. Don’t try to create engagement with money or assume that an annual raise will make things better

Paying an unhappy, unmotivated employee more to do the same work could make the situation worse. It creates a feeling of entitlement to go along with the general dis-engagement that was already there.  Deal with the root problems instead.

  1. Don’t disclose pay publicly, but assume it is public

Our satisfaction with our pay has more to do with our perception of fairness than with our actual pay in dollars and cents. As much as possible, keep people’s pay private. And as much as possible, make sure that people are paid fairly for what they do relative to others in your organization.

  1. Set the pay and the performance bars as high as possible

As much as you can, do away with the dynamic where the employer is trying to get as much work as possible for as little pay as possible, while the employee is trying to do as little work as possible for as much money as possible. Instead, pay as much as you can, set the bar high for the work required, and don’t compromise on the standards. The research shows that with engaged employees, generosity of pay drives generosity of effort.

Taking this approach forces the organization to not accept situations where a truly mediocre employee is accepted permanently because their pay is also mediocre. It drives the need to make sure that each employee is supported to be productive and if nothing can be done to get them there, it drives the need to take appropriate action.

  1. Fight for more and be seen to be doing it

In financially constrained situations, be seen to be fighting enthusiastically to do better for your team. Even when raises are not forthcoming, employees’ perception that the organization is doing all it can to improve their financial situation is almost as powerful as actual increases in pay. For the small business owner with limited resources, keep people in the loop as to what your constraints are and be seen to be giving as much as possible as things improve.

When it comes to employee pay, it is true that you can be doing many things right and one small thing wrong, and that one wrong thing can outweigh all the good. I hope these tips help us all avoid a few traps.