Give Till It Doesn't Hurt

This bonus season, avoid two common mistakes: being a skinflint or a sprinkler

Bonus time just came and went, and once again I got less than I expected, especially considering my performance review. Do I say something to my boss or just accept the fact that companies try to pay workers as little as possible? — Anonymous, Valparaiso, Calif.

If there is one topic that unites employees, it's compensation. Almost no one feels adequately paid. Interestingly, compensation also unites employers. The vast majority will tell you they pay their people fairly, if not better than fairly. And into the gulf between those points of view fall legions of people who feel like you: confused, frustrated, even cynical. Indeed, there's nothing like compensation to drive a wedge between employees and management. Which is a shame, to put it mildly. You simply can't be a great leader and get great results in today's marketplace without paying people the right waywith no BS and tons of differentiation.

That doesn't sound like it's happening at your company. Why exactly, we can't tell from your e-mail. But we do know that when people feel underpaid, it's usually because their bosses deal with compensation all wrong. That is, they're either skinflints or sprinklers.

Skinflints first. These types scrutinize expense reports with Scrooge-like vigilance, looking for the errant umbrella charged to the company, or, God forbid, the meal receipt with a dessert. Worse, when it comes to giving out raises and bonuses, skinflints practically writhe in pain. Many are expert in delivering the "It's been a rough year" speech even in good times. Unfortunately, these jerks are everywhere, and we can only guess what makes them tick. But from our experience, most seem to have a constitutional paranoia about being taken. Whatever; their psychosis is deadly for motivation, creativity, productivity, and just about everything good in an organization.

Sprinklers aren't necessarily cheap, they just give everybody on their teams similar raises or bonuses, regardless of performance. Many sprinklers say their approach is fair and promotes teamwork. Some even use that argument to defend across-the-board pay cuts during slowdowns. With few exceptions, such "shared sacrifice" is evidence of a manager too weak to make the hard calls. No wonder top performers invariably head for the door.

Other sprinklers aren't about fairness as much as phoniness. They distribute equal chunks of change—be it from a $2 million, $200,000, or $20,000 bonus or salary pool—because they can't bring themselves to tell people where they really stand, particularly underperformers. It's just so much easier (and some sprinklers will tell you it's "kinder," too) to just let everyone think they're doing O.K. Again, this is merely weak management and inevitably sends good people packing.

So how does a boss get compensation right? It's actually easy and stems from where we started with this column. Step 1: Stop the BS. Conduct performance appraisals that let employees know exactly where they stand. Step 2: Pay accordingly. That means if someone isn't delivering, don't give him a mini-bonus just to keep his nose in joint. Pay him nothing extra. If someone is performing so-so, make him feel it with a so-so sized check, and not a buck more.

But most important, make your compensation system mean something by rewarding your stars as much as you can. Use money—big money—to make a resounding statement about the "payback" that comes with superior results. Giving your top employees bigger-than-ever-before checks may not come naturally at first, especially alongside giving other employees smaller-than-usual ones. Fight the discomfort. Part of being a truly effective leader is embracing a spirit of generosity. Indeed, the act of making your best people feel richer than they ever imagined should thrill you as much as it does them. If not, keep giving until it does.

Look, money talks. Of course, as a manager, you have to create a work environment that is exciting and challenging. But never underestimate the power of cash to deliver results. When you pay your people the right way, you don't just get your stars to stay. You build a team that trusts you and wants to win for you. They know you put your money where your mouth is.

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