While most organizations overestimate the motivational effect of money, most also underestimate the communications effect of the reward system. What the organi- zation pays for communicates its value system louder and more clearly than letters from the CEO or the mission statement on the wall in the lobby. “Actions speak louder than words” and “Put your money where your mouth is” are more than just old sayings.
Most compensation programs attempt to tie compensation to performance. An
communicating their degree of success in accomplishing their assigned objectives and enabling them to focus their efforts on those activities that are most valued by the organization.
The actual effect of most pay-for-performance base salary programs and of most variable compensation programs often is far from this ideal relationship.
A key reason for this is the all too predictable results of these programs. Salary reviews come annually on an organizational or individual anniversary date.
Increases cover a narrow percentage range, with a minimal percentage difference between average and outstanding performance. Bonuses are given out XX days after the end of the fiscal year, and either almost everyone or no one gets one. The net effect is to encourage an entitlement mentality, with employees expecting to get annual salary increases and at least a percentage of their incentive opportunity.
The Nature of a Lightning Strike Bonus
In keeping with its name, a lightning strike bonus (LSB) can happen to any employee at any time. Unlike the common myth about its namesake, LSB’s can strike in the same place more than once, so that having received one does not preclude an employee from the opportunity to receive another.
To be effective, an LSB program must have several characteristics:
■ Awards can, and do, occur at any time during the year
■ Awards are large enough to have financial significance to the recipient
■ Any employee at any level is eligible for an award, but only a select few will win one
■ Its receipt by the honored individual is widely publicized within the organization
■ It is clearly tied to a specific, identifiable accomplishment
■ That accomplishment is significant enough that other employees clearly understand the appropriateness of granting an LSB for it
To be effective, an LSB program must avoid several pitfalls:
■ The appearance that only certain categories of employees (supervisors, professionals, line, sales, etc.) can win an award
■ The appearance that their superior’s favorites will win an award, regardless of their performance or that of others, that what you accomplish is less important than who you know
■ Reducing the impact of receiving an LSB by making it too common, thus becoming something that “everyone” wins rather than something truly special
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Paying for the Lightning Strike Bonuses
All organizations have a compensation budget, whether formal or informal. That is, they all have only so much that they are willing or able to spend on employee compensation in all of its forms. Adding a new compensation element thus requires cutting an old one.
If one takes 0.2 percent of payroll from the compensation budget and forms an LSB pool, then it would be possible to give 4 percent of annual salary (two weeks’ pay) to 5 percent of the total number of employees from this pool (0.040.050.0020.2 percent).
For example, assume a salary increase budget of 3.0 percent of payroll, with no traditional bonuses to be paid. Rather than giving out the full 3.0 percent in salary increases, only 2.8 percent is given out. This leaves 0.2 percent of payroll in the LSB pool. Assuming that LSBs are fairly distributed across the various salary levels within this population, a grant of 4 percent of annual salary to 5 percent of this population approximately equals the 0.2 percent of annual payroll.
Setting up an Effective LSB Program
Given the “dos and don’ts” outlined above and also the need to keep program costs within the available LSB pool, an effective LSB program requires both formaliza- tion and a fairly strong degree of centralization. Nominees for an LSB should meet formal eligibility criteria.
A written nomination in a specified format should come from the employee’s supervisor and be approved by the supervisor’s supervisor. The approved nomina- tions should go to an LSB review committee. This committee should consist of the highest ranking local managers at remote sites or of top officials at division or corporate headquarter sites.
The committee’s responsibilities include:
■ Insuring that a nominee’s performance is fully documented and that the out- standing performance aspect is clearly understandable to the reader
■ Insuring that LSBs are given only for performance that is truly outstanding and not as a reward to a favorite employee or in lieu of the ability to grant a larger salary increase to an employee threatening to leave the organization
■ Insuring that LSBs in any one year do not go to more than 5 percent of the total employee population in the locales controlled by that committee
multicultural workforce without any increase in cost to the employing organization.
One approach (credits) challenged the current approach to payment, while the other (lightning strike bonuses) broke from the time-bound methods of compen- sation delivery. Whether or not either of these approaches offers something of specific interest, it is hoped that the reader will take from this chapter the need to challenge traditional assumptions about compensation design and delivery.
As organizational strategy continuously evolves to deal with the rapidly changing external environment, human resources strategy must continually evolve with it. As human resources strategy continuously evolves to deal with the rapidly changing organizational strategy, compensation strategy must continuously evolve with it. The challenges of globalization and of employee diversity are affecting every organization, and they require that we approach all of our cherished beliefs about how best to compensate our organization’s employees with an open mind.
END NOTES
1. F. Herzberg, B. Mausner and B. B. Snyderman, The Motivation to Work, 2nd edn. New York: Wiley, 1959.
2. M. G. Wolf, “Need Gratification Theory: A Theoretical Reformulation of Job Satisfaction/Dissatisfaction and Job Motivation,” Journal of Applied Psychology, vol. 54, 1970, pp. 87–94.
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