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Innovative Employee Compensation Methods To Motivate Employees David Westman Executive compensation is hot. Compensation consultants and the variety of program packages they offer are increasing exponentially. In contrast, regular employees are getting shafted when it comes to compensation issues. These non- executive workers feel ignored and frustrated as they see the gap between executive and employee compensation widen with each passing year. Yet, it is these people who make up the bulk of the work force and collectively contribute the most to company success. Several trends indicate a need for more focus on employee compensation. These include: • A continuing shortage of qualified professional, technical and administrative employees. • A growing need for employees who are multi-skilled and adaptable to change. • A decreasing level of long-term commitment by employees (i.e. employees are much more willing to move around to meet their career and lifestyle preferences). • An increasing need for balance between work and other facets of life. Despite these trends, many companies continue to offer employees the basic compensation package that has been around for years: base salary, traditional benefits like health, welfare and retirement, and perhaps a profit-sharing plan. Are there alternatives to consider? Absolutely! Unfortunately, many top managers lack both the time and the creativity to take advantage of numerous other compensation vehicles that drive performance improvement and build employee morale and commitment. These

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Innovative Employee Compensation Methods To Motivate EmployeesDavid WestmanExecutive compensation is hot. Compensation consultants and the variety of programpackages they offer are increasing exponentially. In contrast, regular employees are gettingshafted when it comes to compensation issues. These non-executive workers feel ignoredand frustrated as they see the gap between executive and employee compensation widenwith each passing year. Yet, it is these people who make up the bulk of the work force andcollectively contribute the most to company success.Several trends indicate a need for more focus on employee compensation. These include:• A continuing shortage of qualified professional, technical and administrativeemployees.• A growing need for employees who are multi-skilled and adaptable to change.• A decreasing level of long-term commitment by employees (i.e. employees are muchmore willing to move around to meet their career and lifestyle preferences).• An increasing need for balance between work and other facets of life.Despite these trends, many companies continue to offer employees the basic compensationpackage that has been around for years: base salary, traditional benefits like health, welfareand retirement, and perhaps a profit-sharing plan.Are there alternatives to consider? Absolutely! Unfortunately, many top managers lack boththe time and the creativity to take advantage of numerous other compensation vehicles thatdrive performance improvement and build employee morale and commitment. Thesevehicles are not necessarily expensive. In fact, some of the most effective ideas involveminimal or no cost.During the course of research, I identified over 100 low-cost or no-cost programs whichhave been used successfully by companies. Following are examples of programs that tiedirectly to employees performance:• Time Off Surprise: Give Supervisors a bank of days and/or afternoons off that they

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can reward to staff on the spot for meritorious service. Variations of this programinclude handing out $20 bills or lunch coupons. Of the employees I’ve surveyed,68% believe this would improve staff performance and morale.• Behind-The-Scenes: Recognize employees yearly or periodically who are notusually in the limelight. An alternative, the Good Tries program, involvesrecognizing employees who take risks, regardless of whether those risks result infailure or success. More than 70% of employees surveyed support implementation ofthese programs.• Cash For Ideas: Periodically hand out index cards and ask employees to recordways the company could save money. Pay a nominal amount (like $3 per idea). Ifthe idea is implemented, pay an additional $25 or 10% of the savings – whichever isgreater. The Poster Ideas program is somewhat similar. It involves hanging poster board at key locations within the company. Written at the top of each board is aproblem that needs solving. Anyone can write their ideas in the space remaining onthe poster• Travel Expense Gainsharing: Create a program for employees who save on travel;for example, allow them to keep half the cost difference between their choice ofhotel or transportation and the company’s standard. I recently took advantage of asimilar program myself. One of my clients required me to make frequent trips toVermont. At $1100, the weekday round-trip airfare cost more than a similarexcursion to Europe. By taking advantage of my company’s gainsharing program, Iarranged to stay the weekend and pocketed half the $750 difference in airfare. I usedthis bonus to fly my wife out to join me for a wonderful get-away in the height of thecolorful Vermont leaf season.The above programs are tied to performance, but employers should also consider nonperformance based programs. One compelling reason is that most employees believe there isa need to find a better balance between work and free time (per a Milliman & Robertson

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survey). Organizations which offer incentives to enhance satisfaction beyond the job willbenefit from employees’ loyalty, commitment and future performance. These types orprograms enhance recruiting initiatives. The 1993 National Study of the Changing WorkForce finding reveal that when employees were asked the most important deciding factorsfor accepting a job, the “effect on personal/family life” ranked far ahead of wages.Non-Performance Based ProgramsThese programs also complement post-performance reward programs like those discussedabove and traditional incentive compensation plans. Although many employees aremotivated by the rewards that good performance often brings, others perform will if they aretreated will from the start. Examples of non-performance based programs abound. Theyinclude:• Core Hours: Give employees flexibility with regard to when they work on-site. Forexample, all employees could be require to be at work between 10:00 a.m. and 3:00p.m. Beyond this general guideline, some employees may choose to arrive at 6:00a.m. and leave at 3:00 p.m. Others may choose to start their day later and leave later.• TIPS (Tips for Improving Performance): Offer employees a 15- to 30-minuteworkshop on topics they need to enhance their professional and personal lives. Sometopics might include handling difficult situations, goal-setting, dealing with change,nutrition, fitness and recycling. Attendance for these programs should be voluntary.• Casual Dress Program: Give staff a casual dress day once a week, during the entiresummer, or on a permanent basis. Who would have dreamed years ago thatcompanies such as IBM, Amoco, and Arthur Anderson would let their employees gocasual? Yet these and hundreds of other companies of all sizes have joined thecasual-dress bandwagon.• Employee Discounts for Company Goods: Offer certain goods and services

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purchased by your company at cost to staff like gasoline, computers and peripherals,and office supplies. More than 65% of employees surveyed support this type ofprogram. • Deserve a Discount Program: Initiate a discount-card program with localmerchants, which can result in 10-20% savings to staff on purchases like haircuts,clothing, food and entertainment. More than 80% of employees surveyed supportedthis. You don’t have to be as large as American Association of Retired Persons toinitiate this idea. Nearly 20 years ago, while at a small Midwestern college, I starteda similar program with 15 area merchants which resulted in 10 to 15% saving to ourapproximately 2,000 students.• SOS (Services on the Spot): Introduce an SOS program which offers employees theability to run “errands at their desks,” including any or all of the following:-Dry cleaning pickup and delivery-Shoe shining and repair-Drivers license, auto tag and title renewal-Gasoline fill-up and/or oil change service-Drugstore item delivery-Cafeteria take-home dinnersRelationship-Building ProgramsA third category of ideas to consider to motivate employees and maximize performance arerelationship-building programs. These incentives may not be viewed by some ascompensation because there is no exchange of cash or merchandise, and no traditional ornon-traditional benefits or perks. But such programs encompass a broad set of interactionswhich build camaraderie, open communication channels and break down organizationalbarriers – all of which are valued by employees and enhance their motivation andperformance.The National Study of the Changing Work Force findings cited previously indicate that themost important deciding factor for accepting a job is “open communications,” which can betranslated as healthy working relationships. The same factors that motivate people to start a

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job search will likely motivate them on the job as well. Examples of relationship-buildingprograms inlclude:• Executive Coffee Breaks: Institute a program where the CEO and/or other topexecutives meet with all or small groups of staff for an hour or so over coffee.Although the discussion is free-flowing, employees are encouraged to send questionsin advance. Nearly 90% of employees surveyed expressed enthusiasm for this idea.• Stand By Me: A Chicago-area financial institution sponsors numerous radioadvertisements promoting a program in which their executives spend a day outsidethe bank each year working side by side with their customers. This idea can beequally effective in building relationships internally as executives work side by sidewith staff. Nearly 70% of employees surveyed liked the concept.• Orient the Family Program: Sponsor a family orientation program for new staffwhich includes refreshments, office tours, a slide or video introduction to theorganization and dialogues with top executives. Follow up with family socialsthroughout the year. Many companies neglect to consider the influence that spousesand other family members have on employee satisfaction. • Cooperative Charity Day: Give each department an annual day off to work with alocal charity organization. Some organizations, in response to the recent volunteerinitiative directed by Colin Powell, have taken this concept a step further.Timberland is giving each employee 40 hours of paid time each year to work withlocal charities. In addition to the public relations value, such programs build pride inthe work force and serve to enhance internal relationships.• Special Dress Days: Plan special dress days to promote a sense of humor. Examplesmight include Ugly Tie/Earrings, Crazy Sweater, Silly Socks, Hawaiian, and/orHalloween Costime Days, Prizes might be given for best costumes.Application IssuesGiven the multitude of alternative low- or no-cost programs available to motivate, recognize

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and reward employees, why do so few companies go beyond the traditional approach tocompensation? A primary reason is that executives, supervisors and human resourcesprofessionals don’t have time to research alternatives. Many also lack the creativity todesign or develop new ideas. Even with time and creativity, patience is rare. Like anycompensation initiative, low or no-cost programs should not be slapped together. Here arefour key principles to consider:1. Identify the role incentive programs should play in supporting the company’s overallstrategy and other compensation programming. Examples include base salaries,traditional annual and long-term incentive compensation plans, and traditionalbenefit plans. The entire compensation package should work together, withoutcompeting priorities.2. Identify as many program alternatives as possible for consideration. Don’t just settleon the one or two you personally find appealing. In addition to the ideas presentedhere, ask your counterparts in other organizations for suggestions. Consultants cancertainly offer their experiences working with numerous companies. I also highlyrecommend the following books as references:o ”Getting Employees to Fall in Love With Your Company,” byJim Harriso ”1001 Ways to Reward Employees,” by Bob Nelsono ”Care Packages For the Workplace,” by Barbara Giant3. Gather input from a cross-section of employees to select new programs. Suchfeedback may reveal that different programs are more appropriate for differentemployee categories (e.g., union versus non-union, supervisors versus staff). Actionsteps to keep in mind are:o Define specific programs to include in a survey.o Identify survey participants and empolyee categories: forexample tenure, organizational level, role etc.o Tailor and administer the survey to selected particpantso Develop a presentation format and tabulate survey results.o Conduct follow-up focus groups to clarify and expand upon

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survey results.4. Use a systematic process to finalize program design and rollout. Companies shouldtarget no more than five programs for initial development and implementation. Moving forward with too many programs can be overwhelming and result in a lackof focus. It is better to spend time administering a few programs right and thengauging staff reactions. Let experience guide the organization and shape future ideas.Specific action steps to keep in mind are:o Convene a Project Team to establish general guideline foreach selected program.o Assign a champion or sponsor accountable for each selectedprogram to:-Draft administrative guidelines-Develop a detailed implementation plan-Assure that all appropriate stakeholders have input.o Utilize a review process which includes the Project Team andtop executives.o Develop and implement a communications campaign.o Administer the programs, obtain feedback and finetune theprograms over time.Helpful TipsIn addition to identifying and implementing organization-wide low- and no-cost programs, italso makes sense to give supervisors a list of additional ideas for possible use within theirspecific work units. Ideas which may not be appropriate for the entire organization mayprove highly effective for certain departments and employees.Other guidelines for program development and implementation include:1. Incorporate variety in program offerings, since what is meaningful to one personmay not be meaningful to someone else.2. Assure broad eligibility for awards. Recognize that staff at all levels contribute to theorganization’s success.3. Avoid competitive programs to the extent possible (i.e. don’t divide employees into“winners” and “losers”.)4. Reward, recognize and build relationships throughout the year.5. Allow personal expression by giving employees several reward options6. Consider merchandise as an alternative to cash awards. Employees might simply use

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money to buy groceries or pay the electric bill. With merchandise, employees arereminded of the company’s appreciation each time they loot at it – be it a gym bag ora VCR.7. Use your corporate logo when possible. More than 70% of respondents to a recentsurvey believe that the corporate logo or related symbols add meaning to an award.SummaryCompanies are not bound by tradition when it comes to compensating and motivatingemployees. Take advantage of the accumulated experiences of others and internal creativityto craft a new approach to compensation management which employees will value and which will drive performance to new heights.Presented to you by the Iowa Business Network.

1Creative CompensationSarah L. FoglemanExtension Agricultural Economist, SEKansas State UniversityThere are many different aspects of human resource management. Some are optional. Some are not.While it may be easy for an employer to put off writing a job description or assembling a handbook,the process of setting up a compensation package is one that every employer has had to go through.Granted, some employers spend weeks or years choosing health insurance providers, doing wagestudies, and setting up 401(k)s while others may just pick a dollar figure out of the air and call itfinished. No matter how much time and effort is spent in setting up the compensation package, thereare three basic principles all employers, large or small, should consider.1. Send the Right Message2. It’s not about Money3. Use the Right CarrotsSend the Right MessageWhen it comes to employee compensation, most managers are busy asking: “What do I have to pay to

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….?” That is not an easy question to answer. A better question might be: “What do I want mycompensation package to say?” Whether you realize it or not, it is already saying a lot. Child care andhealth benefits say that you value family. Giving longevity bonuses for employees on the anniversaryof their employment with you says that you value employees who stay with the business. Throwing aparty at the end of your business’s busy season lets the employees and their families know that you2appreciate it when your people go the extra mile. No matter what compensation elements you use,they all carry a message.That message is important. It is the principle on which the following two components of this paper arebased. Compensation packages can be linked to business structure, employee recruitment, retention,motivation, performance, feedback, and satisfaction. Compensation is typically among the first thingspotential employees consider when looking for employment. It is important, therefore, to give a lot ofconsideration to your business’s compensation structure. After all, for employees, compensation is theequivalent not to how they are paid, but ultimately, to how they are valued.It’s not about MoneyIt’s easy to think “dollars per hour” when thinking about compensation. But an employer whodevelops a truly creative and successful compensation package understands that it’s not about money.It’s about meeting the employee’s needs.One of the biggest mistakes an employer can make is to make a large investment of time or money toinitiate compensation elements that his/her employees do not need or want. Successful compensationpackages are really total rewards systems, containing non-monetary, direct, and indirect elements allbased on the objectives of the employer and the needs of the employeesNon-Monetary Compensation can include any benefit an employee receives from an employeror job that does not involve tangible value. This includes career and social rewards such as jobsecurity, flexible hours, and opportunity for growth, praise and recognition, task enjoyment,and friendships.3Direct Compensation is an employee’s base wage. It can be an annual salary, hourly wage or

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any performance-based pay that an employee receives, such as profit-sharing bonuses.Indirect Compensation is far more varied, including everything from legally required publicprotection programs such as Social Security to health insurance, retirement programs, paidleave, child care or housing (Schuler).Employers have a wide variety of compensation elements from which to choose. By combining manyof these compensation alternatives, progressive managers can create compensation packages that are asindividual as the employees who receive them.Some indirect compensation elements are required by law: social security, unemployment anddisability payments. Other indirect elements are up to the employer and can offer excellent ways toprovide benefits to the employees and the employer as well. For example, a working mother may takea lower-paying job with flexible hours that will allow her to be home when her children get home fromschool. A recent graduate may be looking for stable work and also an affordable place to live. Both ofthese individuals have different needs and, therefore, would appreciate different compensationelements.In a tight labor market, indirect compensation becomes increasingly important. Businesses that cannotcompete with high cash wages can offer very individualized alternatives that meet the needs of thepeople you want to employ. Such creative compensation alternatives are the small business’scompetitive advantage.4Indirect Compensation AlternativesFlexible Working Schedules Elder CareRetirement Programs Moving ExpensesInsurance (Health, Dental, Eye) Subsidized HousingPaid Leave (Sick/ Holiday/ Personal Days) Subsidized UtilitiesTickets to Events (ball games, concerts) Magazine SubscriptionsBoots and Clothing Laundry ServiceCompany Parties Use of Farm Trucks, MachineryFarm Produce / Foods/ Meals Cellular Phones/ PagersChild Care Use of Farm Pastures and GardensAsk ten different people what a fair wage is and you’ll get ten different answers. While there are nohard and fast rules in determining a fair wage, the importance of the task is obvious. Research

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indicates that employees expect wages to 1) cover basic living expenses, 2) keep up with inflation, 3)provide some funds for savings or recreation, and 4) increase over time (Billikopf). Discussing wageexpectations with employees can help determine what their compensation package should look like.While money isn’t everything when constructing a compensation package, it is a large portion of whatthe package may eventually contain and it may be the only element a potential or current employeemay think about when considering other employment options. It is absolutely vital that businessesmaintain internal and external equity. Internal equity refers to fairness between employees in the samebusiness while external equity refers to relative wage fairness compared to wages with other farms orbusinesses. No matter the compensation level, if either internal or external equity is violated, abusiness will most likely experience employee dissatisfaction and employees will begin to balance5their performance through a variety of ways ranging from decreased productivity to absenteeism andeventually to leaving the business (Billikopf).So, what constitutes a fair wage? One approach to determining a fair wage is a market survey. Theseare typically fast and easy ways to establish compensation guidelines for many businesses. A fewphone calls to other employers in similar businesses can determine the “market” value for a specificjob (Schuler). Unfortunately, this technique is not necessarily well suited for agricultural producers(Fogleman et al). An agricultural manager can do informal surveys of other agricultural producers todetermine the “going rate” for labor or modify existing studies of non-agricultural businesses tocompare employees not by job title but by skill sets. For example, operating a forklift in a factory anddriving a tractor may require similar skills and, therefore, can be compensated similarly.Use the Right CarrotsWhile the second principle applies to meeting the needs of the employees, the third principle applies tomeeting the needs of the business.A compensation package is one of the most concrete ways in which an employer can communicate the

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mission, vision, and values of the business. The benefits and incentives set in place by thecompensation package will invoke certain responses from the employees. An employer has to becertain that those responses match the objectives of the business. In other words, the employer has tobe careful to “use the right carrots.”For example, consider a farrow to finish swine operation where the farrowing unit has seen an increasein pre-weaning mortality. To help solve this problem, the owner instigates a bonus system based on6live pigs out the door. The result: nursery mortality starts to rise as sick and weak pigs who normallywould have stayed in the farrowing unit are shipped off to the nursery and, eventually, die.Are the employees of that farrowing unit to blame for the sudden rise in nursery mortality? No. Ifyou’re surprised by that answer, think again. Based on their compensation package, those employeeswere only doing what their managers wanted them to do—they were following the carrots. AsJohanna Slan said in Using Stories and Humor, “Sometimes we try to fix people when it’s the systemthat stinks.”So, is it worth the risk? Should an employer instigate some type of performance incentive when thereis a possibility that it will only create problems in other areas of the business? The answer is, yes, it isworth the risk. The general consensus of recent studies is that pay should be tied to performance to beeffective. The key is in finding carrots that don’t send the wrong message and making employeesunderstand how their actions impact the entire business.Successful managers must search for things the employees influence and base performance objectiveson these areas. Your operation may benefit from the following: tenure bonuses for long-timeemployees, equipment repair incentives to encourage good equipment maintenance, or bonuses forarriving to work on time. The more production information data your business has, the easier this is toaccomplish. Measures such as feed conversion rates, somatic cell count, or mortality can offer greatsources for performance incentives. But, as always, be certain that those incentives send the messagethat you want your employees to receive.7

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ConclusionsAgricultural managers face many decisions every day. Finding the time to build and implement anequitable wage structure can be difficult. To make the process easier, consider the following checklist:1. Decide what you want your compensation package to do.--Recruit new employees--Motivate current employees--Reward well-performing employees--Minimize risk of violating federal laws--Build employee loyalty--Any combination of the above2. Talk to your employees about their Compensation needs:--Health Insurance--Paid Vacation--Housing--Child Care--Retirement Planning3. Structure your compensation package based on what your business is about:--Goals--Mission--Vision--Values4. Implement your new system, remembering to--Communicate with your employees about their needs8--Review your compensation package regularly. Make sure it is fair, equitable, andcompetitive.--Be flexible and innovative to maintain a competitive advantage--Maintain both internal and external equitySuccessful agricultural producers rely heavily on common sense when it comes to managementdecisions. The area of employee compensation should be no different. If you want your employees tobe innovative—reward them for new ideas. If you want your employees to stay with you for a longtime instead of training new employees every season—offer bonuses or tie their wages to their tenure.If you need employees that show up on time, work hard, and can be trusted with the most challengingof tasks—recruit those people; reward those people; promote those people. The future of yourbusiness could depend on it.References

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Billikopf, Gregory. Labor Management in Ag: Cultivating Personnel Productivity. AgriculturalExtension: University of California.Doane’s Agricultural Report. Risk Management Education Summit. Volume 60, Number 39-6.September 1997.9Fogleman et. al. Employee Compensation and Job Satisfaction on Dairy Farms in the Northeast. April1999. Cornell University, RB99-02.Kansas Department of Human Resources. Kansas Wage Survey: 1996 Edition. April 1998.Rosenberg, Howard. “Labor Management Decisions”. University of California APMP ResearchPapers, Volume 8, Number 1, Winter-Spring 1999.Schuler, R. (1998). Managing Human Resources. Cincinnati, Ohio: South-Western CollegePublishing.

Getting your compensation plan to align with corporate CRM goalsalso means implementing the right plan. Here are four types of variable compensation plans fromCompensating the different types of  Industry:- Gain sharing- Reward employees for achieving pre-established goals- Management bonus plans- Tie compensation plans with performance