Keep your employees "in the game"

Michael Pos, my colleague at BD Advisory, recently published a short opinion piece concerning what companies should do with their 2020 annual broad-based discretionary bonus programs. In the posting, Michael explained our view that organizations should demonstrate human caring, take a long-term view, and not hastily eliminate the bonus as a cost-savings measure.

One of my personal learnings from being in a senior Total Rewards leadership position during the 2008 financial crisis is the importance of having an organization keep its employees financially and emotionally “in the game”. Discretionary bonus programs have a role to play in keeping employees engaged and focused on what is important - especially during extraordinary times.

Why engagement matters

In the internet, you can find a number of definitions for employee engagement. The Society for Human Resources (SHRM) defines engagement as “the level of an employee's commitment and connection to an organization”. Gallup defines engaged employees “as those who are involved in, enthusiastic about and committed to their work and workplace”.

Why is engagement important? Studies published by organizations ranging from Gallup (2016) to Willis Towers Watson to The Wharton School at the University of Pennsylvania suggest that companies with high levels of employee engagement are also those which are more profitable and deliver better financial results. Bain and Gallup (2017) studies also find that engaged employees are more productive than their peers. Lastly, Gallup (2017) found that engaged employees were less likely to leave their organizations.

A number of things drive employee engagement. There are two in particular that I would highlight, which I think are particularly relevant for crisis management. The first is a sense of financial security and stability. The second is a sense of purpose and fulfillment.

A hierarchy of needs

Human Resources professionals are familiar with Abraham Maslow’s Hierarchy of Needs. At its base lie “basic needs”. Basic needs must first be largely satisfied, the theory holds, before individuals can strive to satisfy higher level needs.

In today’s crisis environment, your employees are most concerned about meeting their physiological and safety needs.

Very simply, the income they earn from working makes it possible to provide for food and shelter and thus satisfy core physiological needs. This income also enables economic safety to be satisfied and importantly provides for health safety, a key consideration in countries where medical benefits are not provided by the state. Even though they should not, many employees count on their annual bonus to address basic financial needs.

If employees are not having their physiological and safety needs met by their organization, then being able to derive self-esteem and self-actualize at work is unlikely. The sense of purpose employees get from their work and identifying with their employer gets eaten away at. Their engagement fades or even disappears.

This is an important because many of us derive some part of our self-esteem from being recognized for having a mastery of our profession. The workplace is also where we may look for self-fulfillment, at organizations whose purpose and values align with our own. The annual bonus payment is a tangible sign of a job well-done and recognition for accomplishment.

To keep your employees’ hearts and minds “in the game”, you need to keep them financially there too.

Completely eliminating the annual bonus not only takes away an engagement tool, but also one which tells employees where they should invest their efforts.

Don’t let your ship sail with a broken rudder

As Comp&Ben professionals can attest to, well designed incentive programs are signal posts for organizations. They are a tool that communicates to employees what the organization’s strategy and goals are, what is critical for it to achieve, and what the worth to it is of different levels of achievement.

An organization’s strategy and goals are, in turn, rooted in its purpose and vision. When incentive pay is eliminated out of hand, a part of the rudder that helps to guide the boat through shifting and choppy waters has broken off. The elimination of the incentive pay program may even signal it is time to abandon ship.

Not only is incentive pay a critical tool for communicating what is important for an organization to achieve now during the crisis, it also has a vital role to play post-crisis.

Incentive plans should be adapted as appropriate to help keep employees engaged and focused on what is the new mission critical and aligned against the organization’s purpose and vision.

Objectives should be re-evaluated, goals reset, and ‘stretch’ levels recalibrated.

All of this does not mean that the annual incentive plan bonus should be paid just to be paid. Nor does it necessarily mean that payouts should match those prior year levels where business performance was truly superior. Payout budgets should absolutely be reassessed and affordability be top of mind. Awards can even be banked for payout in a future time when liquidity returns.

Treat your employees as stakeholders who are just as invested in your firm’s current survival and future success as your management team, board and investors are. Your company’s resilience and long-term sustainability depends on it. Keep your employees financially and emotionally “in the game”. Provide them with a vision of where the organization is going and how they fit in, and make clear what they should be focused on.