United States Auto Industry Case Study

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Do professionals and executives deserve to be incentivized differently than the rest of us?

Chapter 10: Pay-for-Performance: Incentive Rewards: 10.7 Incentives for Professional Employees Book Title: Managing Human Resources Printed By: Cedric Turner ([email protected]) © 2016 Cengage Learning, Cengage Learning

10.7 Incentives for Professional Employees When it comes to individual, team, and enterprise incentives, professional employees—engineers, scientists, and attorneys, for example—are no different than anyone else. As professionals become increasingly productive, typical organizations move them into management positions. Yet in some organizations professional employees cannot advance beyond a certain point in the salary structure unless they are willing to take an administrative assignment. When they are promoted, their professional talents are no longer utilized fully. In the process, the organization may lose a good professional employee and gain a poor administrator. To avoid this situation, some organizations have extended the salary range for professional positions to equal or nearly equal that for administrative positions. The extension of this range provides a double-track wage system, as illustrated in Chapter 7, whereby professionals who do not aspire to become administrators still have an opportunity to earn comparable salaries.

For many professions, the primary incentive system is based on an “up or out” model. This means that junior professionals are hired by the organization and given a set amount of time, maybe three to six years, to make valuable enough contributions to the firm to become a partner (part owner of the company). Within this amount of time, if they have not made these contributions their employment is terminated. For many years, this has been a valuable incentive system for professional employees. However, the up or out model is seeing less results in terms of motivation as junior professionals are increasingly questioning whether the game is worth the prize. For example, Chad, a senior manager at Ernst & Young (a large accounting firm), said, “The closer I become to going up for partner, the more I realize I don’t want to become one. The quality of life they live is not worth the additional pay they bring in.” Shortly after his statement, this senior manager left the organization for a high-tech firm, which he says is his “dream job.”

Motivation of professional employees is also influenced by their increased mobility across companies. Because professional employees are tied more to a profession than an organization, their skills can be valuable across the profession. For example, a physician’s skills depend on standardized training that can be applied to any hospital in the United States. In fact, it is no longer considered unethical, or even unusual, for professionals to move across competing firms to advance their careers. As a result, employee mobility has been steadily increasing since the 1980s. In addition to promising partnership after

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so many years, managers of professionals are considering other incentive systems to keep their employees happy.

Professional employees can receive compensation beyond base pay. For example, scientists and engineers employed by high-tech firms are included in performance-based incentive programs such as profit sharing or stock ownership. These longer-term incentives help professionals feel like they are part of the company and that their overall efforts will impact their ability to make more money.

However, where many companies often mess up is by applying the same individual and team-based pay-for-performance principles used in traditional jobs (e.g., manufacturing, clerical). For example, many companies offer cash bonuses to professionals who complete projects on or before deadline dates. They also pay individuals for new patents, publications, or for completing certain tasks within a given time frame. Unfortunately, what often works for employees conducting more specified tasks does not work for employees whose work is ambiguous, complex, and requires creative thought. Countless studies have been done to prove that individual and group-based pay-for-performance plans can actually have a reverse effect on a professional’s performance. It turns out that individual incentives narrow a person’s focus. They concentrate the mind. That is why they work in so many circumstances. However, for professional employees, where the task is complex and the solution is not easy to figure out, it is important to motivate employees to be more creative. Pay-for-performance, unless it is a longer-term incentive, can be problematic in this case.

So how should you incentivize your professional workers? Pay is still important, but it should be based more on overall performance over time, and it should not limit them to a set of certain tasks. In other words, make sure your incentives are based around the impact of someone’s work and not just that a certain task was completed. Such rewards should provide

autonomy to the worker,

clear goals or objectives,

worker involvement in the goals set,

the ability to develop new skills, and

purpose (e.g., helping to build a better organization, curing cancer, alleviating poverty).

Today’s HR managers need to be creative in finding ways to motivate and retain their professional employees.

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Chapter 10: Pay-for-Performance: Incentive Rewards: 10.7 Incentives for Professional Employees Book Title: Managing Human Resources Printed By: Cedric Turner ([email protected]) © 2016 Cengage Learning, Cengage Learning

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