The Secret ALL GREAT Companies Know About Pay

Performensation1

Performensation1

I generally write about incentive compensation, executive compensation and performance issues, but today’s post is written from a very different perspective. I hope you will bear with me on this. “Living Wage” is a term thrown about casually in the media and among politicians. It is not minimum wage. In fact, it has a very specific definition (read more on it here). A living wage ensures individuals make enough for their family to exceed the poverty threshold. I think even that definition falls short of reality.

But, this post isn't about the political ramifications of a minimum wage or a living wage. It is not about altruism, or what is doing the “right thing”. It is far more self-serving, perhaps even selfish. This is about how paying people better can result in improved company performance and how that can result in your executives and shareholders making more money. (See I told you it was self-serving)

Think about the term “living wage.” I’ll bet you don’t consider keeping employees poor as a reasonable threshold. Seriously, why ask people to work if being poor is the end result. If your goal is to keep your employees poor, then you don't need much in the way of strategy or execution. But, if your goal is the attract, motivate, retain and engage good employees, then “living wage” should refer to the LIFE you want your employees to live, not some form work-subsistence compromise.

Only after you have determined your definition of a living wage can you decide how much money that requires. And, only after this has been done will things like incentives, recognition and other rewards make any sense or have any long-term impact.

BUT HERE’S THE SECRET THE BEST COMPANIES ALREADY KNOW… Once you pay people enough for them to appreciate their lives, everything you add to that equation begins to have real impact.

Recognition programs and words of thanks have little meaning if your employees don’t believe you appreciate them enough to make sure they can afford clothing, housing, food and education. You don't have to directly provide those things, but living wages should allow for them.

To take this a step further, bonus programs have real meaning if they can be used for something special, rather than to catch up on paying debts that have accumulated from everyday expenses. Vesting events and payouts from long-term incentive plans are exciting when the event is about expanding a person’s future rather than simply making up for base pay that was too low to cover essentials.

Most importantly, if you pay a real living wage, your work environment will improve naturally. People will come to work with less angst, stress and anger. Communications about company and personal goals and objectives won't be clouded by and underlying storm of discontent.

Of course, paying a living wage is not in everyone’s budget. This begs for more research on business models and whether we, as people and companies, truly want our employees to be able to experience even the smallest version of the American Dream. But that’s a topic for another article.

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with company strategy and culture. Do you want to be a better business leader? Get your copy of “Everything You Do in COMPENSATION IS COMMUNICATION” written by 3/8th’s of the Comp Café, Dan Walter, Ann Bares and Margaret O’Hanlon. It’s a practical guide to improving the communication process (with how-to worksheets). Dan has also co-authored of several other books you may find useful including “The Decision Makers Guide to Equity Compensation”, and “Equity Alternatives.” Dan welcomes connections on LinkedIn. Follow him on Twitter at @Performensation and @SayOnPay.

For $0 CEOs, how is their initial equity-compensation determined?

From the SEC: Please Link Executive Pay to Performance