Rethinking the Salary Incentive at Tax Time

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Garold L. "Gary" Markle, CEO of Energage, Inc. Discusses the Big Lie of Pay for Performance.

The simple fact is that companies don't base salary on performance. They can’t afford to. And they shouldn’t even want to.

With tax season upon us, employees are more acutely aware of how their salaries match their career and lifestyle objectives. It’s a rare person who feels he is being overpaid for his job; quite the opposite. This perpetual tension results from measuring employee worth by salary, and it serves neither the staff nor management.

While the economy as a whole might be edging toward a full recovery from the Great Recession, individual companies are still hesitant to award significant salary raises or bonuses, preferring to reinvest their expanded capital into operational upgrades that had been put on hold. So how is management supposed to justify one percent salary bumps when studies show that employees are averaging five percent more hours at work and yielding significantly higher productivity? It can’t.

Our reliance upon a workplace culture based on pay-for-performance can do nothing more than perpetuate employee dissatisfaction. Despite how we all act sometimes, employees are not spoiled children, and management are not rich parents. It’s time to have adult-to-adult conversations about money, discuss where raises really come from, and why that makes sense.

Fortunately there is an alternative approach to human capital management that has been tested in hundreds of companies of all sizes and one that has vastly improved the workplace culture in each. The way those organizations now define jobs, assign tasks and ask people to work together enables them to celebrate more successes and more swiftly navigate around failures. At the front end of economic recovery, now is the time for all companies to take note and make similar changes.

The simple fact is that companies don't base salary on performance. They can’t afford to. And they shouldn’t even want to. Regardless of state or federal legislation, written company policy or any other verbal posturing, an individual’s raise has and always will be derived from four basic factors: budget, salary ranges, performance and potential. So, yes, performance is important, but the problem is propagandizing that base pay is directly tied to that one factor.

While the average employee isn’t privy to budgeting information, managers are quick to proclaim the B-word when discussing raises based on real market factors and business drivers. Also, many managers decry the fact that salary ranges are now widely published on the internet. However, I believe this is actually a great tool that can be used to have transformational conversations with employees.

The longer an employee serves in a position, it is presumed that he gets closer to the top of the pay scale. However, no matter the size of the company, upward mobility is limited to the number of job openings. And, even though companies are hiring again, there are still far more employees for each potential opening.

So how is this dynamic transformed? By having respectful, reality-based conversations with staff members, and by creating new goalposts that have nothing to do with base salary. Simply stated, talk about total compensation, and throw out those wretched employee evaluation programs.

Many employees only seek a bigger title because it means more base pay, when they neither desire nor are equipped for the expanded responsibilities. However, if total compensation is re-framed and personalized to their unique family or career goals, then items like medical benefits, savings plans, flexible work hours, telecommuting, educational opportunities and unpaid leave give them a greater sense of worth and satisfaction.

When it comes to measuring progress and development, stop labeling and grading employees like school children. Replace zero-sum performance evaluations with a more enlightened and inspiring system like Catalytic Coaching that give employees more responsibility and control over their performance. As Steven Covey says, “It’s more important what you’re becoming than what you’re getting,” and coaching programs versus evaluation programs help focus energy on the long term rewards for sticking with you and working hard.

All of this only works if you institute an authentic communications program so employees and managers can have adult-to-adult conversations. Communicate while the budget realities are obvious. Straightforward conversation, even in the toughest economic realities, will produce greater dividends when things thaw.


Gary Markle is a 30-year human capital management consultant responsible for helping hundreds of companies of all sizes transform into “Best Places to Work”. As CEO of Energage, Inc., Markle has made more than 300 keynote speeches to major corporations and conferences around North America, instructing on how to radically change the approach to human resources. Markle is the author of the landmark 1999 work “Catalytic Coaching: The End of the Performance Review”.

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Kimberly Krautter
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