Rewarding is more than Compensation

If you pick the right people and give them the opportunity to spread their wings and put compensation as a carrier behind it you almost don’t have to manage them. — Jack Welch

Recently, one of the economic and social movements has been the so-called “Great Resignation”. More than 4 million people quit their jobs in December 2021 in the US, and according to Insider 65% of Gen Zers plan to join this movement in 2022. One of the consequences is that there are more than 7.7 million people without jobs, yet there are 10.4 million open professional vacancies.

According to Harvard Business Review the quit rate is greatest in mid-career employees between the ages of 30–45. This is probably because remote jobs for people with little experience may be riskier than for people with training and guidance. In addition, the resignation rate is higher in the technology and healthcare sectors.

In the midst of this scenario, talent retention models will become decisive not only in large corporations, but also in startups. This is why the reward system is more important than ever as a mechanism to recruit, retain and motivate employees.

According to Cheryl Zobal, pay is primarily a communication mechanism that is sent to employees about organizational values. Overall the reward system can be an effective tool to promote skill development, formulate organizational culture, reinforce and define organizational culture and support desired behaviors in conjunction with corporate culture. If the organization promotes exceptional values such as customer service it would be wrong to implement incentives only for sales, so there must be alignment to generate the desired motivation.

The tools available to implement the reward system are based on financial and non-financial. The first financial component is the base salary that should have an annual adjustment according to market conditions and inflation. The second financial component is any type of bonus or irregular pay.

Non-financial components contribute to job satisfaction through non-cash payment. They are generally categorized into extrinsic and intrinsic. Extrinsic components could be job recognition to maintain employee loyalty beyond increasing their pay and giving them a promotion, a clear example is the employee of the month award. Intrinsics relate to an employee’s satisfaction in a job well done by receiving more challenging work and opportunities to learn new skills, as well as generating new contacts.

Organizations have designed compensation systems to emphasize and reward the individual based on the market value of the job rather than the person. As a result, companies focus on recruiting talent from the competition, thinking that by attracting the most expensive talent, they will produce the best performance. This pay is also based on the employee’s skills and competencies. By rewarding individual rather than group performance, it allows differentiation and prevents any employee from failing to meet his or her objectives.

However, new organizations are not only flattening out, but have a less hierarchical culture. These structural changes provide more autonomy to the employee. They are also implementing cross-functional teams and empowered decision making. The organization shares their vision and encourages them to work towards the same goal. Thus the individual reward system becomes inappropriate as it does not foster a team spirit.

Moving to team rewards supports cultural and behavioral changes in employees, encouraging cooperation and collaboration. These structures also allow for changes in corporate strategy and culture as Dell did, rewarding teams not only for reaching goals, but for the path they took to get there. As businesses become more globalized, cross-functional teams without boundaries are more common.

Moving from an individual to a team-based reward system requires organizational commitment, changing rules, processes and culture. These changes affect other organizational systems, organizational structure, strategy and performance management system. That is why it is important for an entrepreneur to define from the beginning a structure and culture that is ready for both an individual and team reward system.

There is a five-phase process for developing a team-based rewards program:

Strategy: Define why a team-based reward system is needed. Ask what behaviors are expected to change and what is changing in the business strategy, culture or organizational structure.

Planning and design: Define the mental model of the team through shared values and beliefs, interdependence, low supervision and diversity. Defines and evaluates performance criteria, establishing achievable goals. Determines the measurement methodology, establishing a credible system.

Analysis: Customizes the compensation plan based on team motivation and business needs. The employee may receive a base salary, individual bonus, group bonus, ESOP participation, profit sharing to keep them happy and productive. The model should be tested to ensure effectiveness under varying circumstances.

Documentation: Formalize the reward plan including rules and regulations. Develop incentive agreements with employees, involving teams in documentation to increase motivation.

Communication: Clearly communicate the definition of team rewards, the goals and their alignment with the corporate structure, the measurement mechanisms, and the timing and type of rewards.

An effective team-based reward plan requires empowering employees, providing truly valuable rewards, clarity in the plan, and a combination of individual and team rewards. This could increase productivity, improve job satisfaction and increase the quality of the product or service.

The “Big Quit” is a new stage in the lives of employees and organizations. The causes are diverse, largely motivated by the labor flexibility brought about by the pandemic, the desire to have a better and more meaningful job and to manage the use of time.

This is why adapting the reward system, especially non-financial rewards, is essential to attract, retain and develop the best talent. Especially, in this time where work teams are remote and there is no physical office to communicate the culture, teamwork and its results have become decisive when offering incentives.

The young generation is willing to experiment more. Firstly, they are less motivated by money and compensation, unlike the previous two generations. Secondly, integrity and governance are very important issues for them.- Kumar Mangalam Birla

Hector Shibata Salazar, adjunct Professor at EGADE Business School and Director of Investments and Portfolio at AC Ventures Fund

Ana Maury Aguilar, VC Investor at AC Ventures

ACV is an international Corporate Venture Capital (CVC) fund investing globally in Startups & VC funds.

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