To get the best performance from employees, a significant percentage of their salary has to be in their control. At my former company, Database Technologies, 20% to 30% of compensation was based on performance, which is well above the industry average. Employees were rewarded well for their hard work, as they should be.
Having a highly variable compensation plan helped attract the best employees. Employees who looked only at salary would go elsewhere, since our base salary was below the industry average. Those looking at total compensation, however, would be attracted to Database Technologies, since it exceeded the industry average.
Employees were also compensated for intangible contributions to the company, such as teaching courses and writing white papers. All employees were rated each quarter on a scale of one to five, with five being worth an additional $2,000 per quarter.
It was important to reward employees not only for the quantity of billable hours they provided, but for the quality of their work. All clients were given satisfaction surveys to fill out. Those employees who received high marks from clients became part of the Quality Club. Each year, the entire Quality Club was invited on a company cruise. The cruise was top-shelf all the way, and talk about work was forbidden.
Recognition should be used to complement rewards. Positive reinforcement is the most powerful and effective behavior modifier known. Every manager should know when and how to apply it. It should not be limited to job performance reviews.
When managers and employers recognize employees for the good things they do, constructive criticism about the things they do wrong will be accepted more readily. In general, I try to make four positive statements to an employee for every negative statement I make, but, of course, praise must be earned. Undeserved praise is rightly perceived as being insincere and undermines the impact of more appropriate positive reinforcement.
Rewarding employees pays dividends, and can help your company attract, motivate and retain high-quality employees.