This week’s question for Forbes magazine’s America’s Most Promising Companies initiative once again comes from Brett Nelson, Entrepreneurs Editor at Forbes:
Like it or not, leading the troops means keeping them happy and motivated. How do you do that while cutting their salaries and benefits to stay alive?
We know that there are two reference points that employees use to determine if their pay and benefits are fair. First there is the internal equity of the compensation — how it compares to people around them at work. If everyone is feeling the pain, they may not like it, but it tends to not effect motivation as much as if the cut-backs are selective. If the employees see that everyone — hourly workers, managers, and owners — are taking their share of the cut, the impact on morale and performance can often be minimized.
The other reference is people with similar jobs in other companies. Is their pay equitable when looking at other people in the community or in other companies in their industry? Since times are tough all over, there may be a sense that they are just happy to have a job.
Remember that both of these references — internal and external to where they work — will be used by employees to determine relative fairness of their current compensation.
Small businesses have always had other means of non-salary rewards and compensation that are not always used in larger businesses. More than ever, these can be used to help increase the morale and motivation.
Small businesses have more flexibility in how they structure compensation. To leverage this entrepreneurs should listen to what the employee really wants. There may be opportunity to meet their needs in ways that do not cost money.
An example comes to mind from my days as an entrepreneur in the healthcare industry. There was a manager I wanted to hire to run a new program we were
starting, as he was one of the best in our industry. He worked for a
large, national company. I knew I could not match his salary, but I did
not give up.
I got to know him and found out what he was really looking for in
his career and in a job. He wanted to have more control over his
department. That was easy as we were small and our structure was quite
decentralized. He could run the new program like it was his own
business.
He wanted to have some real ownership in the business he worked in.
We could do that, too, as we set up separate corporations for each new
program we started and we had already planned to offer a small
ownership stake for the right manager. Equity or equity-like incentives
can be a way to defer compensation until you can afford it, and create
an incentive that gets everyone pursuing the same goals.
There was one more thing he wanted, however, and it was clear it was
a deal breaker for him. His current employer had very strict rules on
vacations and holidays. He was a Viet Nam veteran and had wanted to go
to Washington, DC each Veterans Day to remember his fallen comrades.
His current employer’s rules did not make it possible to guarantee
that, and he had missed the last two Veterans Day observances. So, in
my offer I promised him that he would be guaranteed Veterans Day and
one work day on either side of it off each and every year (they were
counted as vacation days). That was all it took to convince him that we
were the best place for him to work. He came to work for us taking a
significant cut in base salary from what he had been making before.