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A Reward Money Can't Buy

July 2, 2004
Related Topics: Work/Life Balance, Benefit Design and Communication, Featured Article, Compensation

On a Monday morning in late March, A.G. Lafley, chairman of Procter & Gamble, thrashed out a business decision with other key executives. By the first Wednesday in May, the plan had been orchestrated, and managers were directed to announce it at staff meetings at 11 a.m. Cincinnati time so that most of the company’s 98,000 employees would find out at once.

    The announcement wasn’t a merger, a crucial new product rollout or a reformulation of Tide. Instead, it was a sort of corporate parole: time off for good behavior. In their meetings, P&G workers learned they had been granted a two-day vacation bonus, a reward for the company’s sustained excellent performance over the previous four years, during which time P&G’s stock rose from $60 a share in the mid-2000 to more than $106 a share in May 2004. "We’ve never before offered a company performance award such as this, but you’ve earned it," Lafley wrote to employees in an e-mail.

    Employees will have the option of taking two days’ pay instead of the time off, but that was hardly mentioned in newspaper headlines across the country that trumpeted the announcement. Experts agree that if P&G had simply made the bonus two days’ pay, it wouldn’t have had the same impact. "Money is spent and forgotten, but chances are an employee would remember for years what he did with his ‘bonus day off,’ " says Bob Nelson, president of Nelson Motivation Inc. in San Diego.

    Terry Loftus, a spokesman for P&G, says that the cost of the bonus "will be in the millions, though it isn’t material from an accounting standpoint." The cash involved would be equivalent to a less than 1 percent bonus, Loftus says. Nevertheless, P&G’s gesture had people pondering the value of time off as a motivational tool.

    Nelson says that paid time off is an underused motivational device, though it comes in many variations, such as flextime core hours, shared positions, extended lunches and "hour off" passes. Some people believe that extra time off can not only boost employee morale but also directly affect sales, if handled right.

    Vickie Milazzo has used paid time off as an engine to drive the growth of her Houston education company, Medical-Legal Consulting Institute Inc. Her $9 million firm offers a certification that allows registered nurses to serve as consultants to lawyers on medical cases that require expert opinions.

    "I want my employees to feel an ownership of the company on some level, but since we’re a private company, they can’t buy stock," she says. Instead, the 22 employees are rewarded for overall company success with time off. If the company’s sales in one month increase by 15 percent over the sales in the same month a year before, each employee receives half a day off. If sales rise by 20 percent, each worker earns a full day off. The extra time off must be used in the following month.

    Even during the rough economic times of the past four years, the institute has grown by as much as 50 percent annually, which Milazzo attributes partly to people’s drive to keep the days off coming. "It’s amazing what people will do for a day off," she says. "They all want to know if the company is meeting its sales goal, and they stay later and cooperate with each other."

    Last year, employees earned the bonus in nine out of 12 months, and the three days that got away "stuck in their heads," Milazzo says. "They knew the time off was out there waiting for them." An incentive like this, she notes, must be attainable, but not 100 percent of the time, or else there’s the risk of its being seen as an entitlement rather than a reward.

    The company uses many other motivational techniques, including parties when monthly sales goals are met and public recognition from coworkers called "snaps" for outstanding customer service. But the days off are by far the most popular program, Milazzo says.

Link to specific achievements
    Some people debate whether across-the-board time off for company financial performance truly motivates. Gerry Murak, a business consultant and turnaround specialist in Williamsville, New York, believes that incentives should reward specific behaviors that employees can change. For example, a worker who assembles chassis for PCs might do an excellent job but lose the bonus if someone in the sales department sets too high a price or demonstrates products poorly. "You can argue that the assembly-line work impacts quality, which affects sales," Murak says. "But I say you should simply reward him for quality then. A lot of times companies reward behaviors that people can’t impact."

    Certainly, time off can reward individual achievement, too. Allied Signal, which is now part of Honeywell, used to give monthly awards, which were a publicly posted certificate for safety and the chance to participate in a drawing for an extra day off with pay. Experts say that group rewards for overall company success must be balanced by incentives for individual achievement.

"Money is spent and forgotten, but chances are an employee would remember for years what he did with his ‘bonus day off.' "

    In the case of special vacation days, Nelson says P&G took the right approach by clearly communicating that the days off were a one-time event that might not necessarily happen again. Experts say that such generosity should indeed be tied to a specific accomplishment.

    VHA Inc., a Dallas-based firm that assists nonprofit hospitals with supply-chain management, has given a number of "spontaneous days off" linked to specific achievements, says Kim Alleman, senior vice president of human resources. Last May, VHA named a new CEO, which resulted in a new company focus that required employees to put in a lot of extra work. VHA usually gives employees the Friday after Thanksgiving off. Last year, the company added the day before Thanksgiving, too, citing it as a reward for hard work during the CEO transition. Employees were also let off early on the Friday before Easter because the company received its highest customer-satisfaction scores ever.

"Days off have more bang for the buck if they are an unexpected gift for a special effort," Alleman says. "But we are also very clear that we don’t intend to add a new holiday, so expectations are not set for the next year."

Who wants more time off?
    Employees’ desire for more time off can be hard to predict, experts say, especially considering the complex views toward vacation during difficult economic times. On average, workers fail to use 1.8 vacation days a year, giving back $21 billion in time to their employers, according to a survey by, the travel Web site. Some 12 percent of workers take no vacation at all.

    The reason often given is that people have too much work to take time off. Some experts see a different rationale, citing a 24/7 culture that makes employees feel too insecure to leave the job. Herbert Rappaport, a psychology professor at Temple University, believes that bosses compound the problem by encouraging vacations and then complaining when their underlings have the gall to take them. In the survey, one in four workers said they would take a cut in pay in order to have more time off.

    Bonus days off can show that a company truly believes that workers with a balanced life make a bigger impact on the balance sheet. "There’s no question that people at P&G are well compensated," P&G employee Dennis Darby told a Toronto newspaper after the bonus vacation days were announced. "But it is a hardworking culture, to the point that you have to tell P&G people to take their vacation. This sends a subtle, or not so subtle, message that taking time off is important."

    There is certainly evidence that time off can be a powerful inducement. Murak, the turnaround consultant, worked with one company that had an unexpected downturn during its busiest season and had to lay off some workers for two weeks. Murak suggested that the company ask workers to volunteer for temporary, unpaid layoffs. Executives were skeptical, but more people volunteered for the unpaid time off than were needed. The volunteers tended to be the most senior workers, the very people who would have been protected from involuntary layoffs. Sometimes by asking and customizing programs, you can turn a bad situation into a good one, Murak says.

    At the same time, experts say, companies must realize that some employees with large amounts of vacation might prefer another reward, so it’s wise to provide alternatives. P&G workers will have to schedule the bonus days off with their managers, as they do vacation time, and they must take them by the end of 2004. Those who elect to receive cash will get a check before the end of August.

    Loftus, the P&G spokesman, has worked for the company for 15 years and already receives six weeks of vacation a year. "My father never got more than one week of vacation in his life," Loftus says. "Six weeks is enough for me, and I’m going to take the cash."

Workforce Management, July 2004, pp. 66-68 -- Subscribe Now!

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