Your compensation and rewards program can be at its best an extremely powerful motivator and attention focusing tool or at its worst a devastating morale destroyer. You choose.

The intense competition for talent in the high tech world has caused companies like Google to be very progressive when it comes to understanding and catering to the needs of their employees. “Googlers” enjoy an astounding array of perks that few companies can match including on-site free cafes and mini-kitchens serving healthy food options, on-site fitness centers and daycare, 100% company paid health insurance, generous parental leave, corporate bonuses, peer bonuses, stock options, retirement plan, in-house courses, visiting speakers, career planning, death benefits, and even more.

Now, no company in the juvenile product industry has the level of profitability that would allow them to follow Google’s lead. And it’s not necessary or even desirable to do so. However, crafting a compensation, benefits, and rewards program that makes it crystal clear that you truly value your employees is something every company can and should do. Here are a few suggestions:

Adhere to the Principles of Fairness and Transparency

These principles go hand in hand. You can’t have one without the other. A business has to be a meritocracy and your employees have to be able to trust you. Few things disturb and demotivate employees more than feeling that someone else in the company that is not contributing as much as they are is getting paid more. In fact, a person’s pay relative to others is as important as the amount itself. Establish a clear, fair, and visible policy about how pay levels are determined and you’ll avoid a lot of angst and wasted time as well as have more success retaining good employees.

Make Compensation Variable Based on Results

The purpose of a business is to create and keep customers and nothing will deliver this message better than a compensation system that provides extra rewards when this is being done well and fewer rewards when it’s not. While the percentage of compensation that’s fixed or variable should vary based on level in the company (e.g. executives more variable than non-executives) and role (e.g. sales force is typically more variable), ideally everyone should have some variability built in.

The best programs have multiple types of variable compensation that are based on a combination of corporate, team, and individual performance. Depending on the job, periodic bonus payments could be calculated based on a combination of corporate and team performance. In addition, discretionary bonuses could be paid for special individual accomplishments (make the criteria clear). Learning or travel opportunities could be other types of individual rewards. Stock options can be effective long-term incentives in public companies.

Whatever approach is used, it’s most effective to have the reward come as close as possible to the results. For example, consider paying bonuses quarterly rather than annually. The annual performance review is pretty much obsolete replaced by either more frequent reviews or even ongoing feedback and rewards.

Be Careful What You Incentivize

What’s tricky about compensation and reward systems is that if you’re not careful, they can backfire. You will absolutely always get what you reward as Wells Fargo and its customers recently learned. As you may recall, aggressive sales quotas there led to the creation of a large number of fake accounts.

How do you avoid this kind of result? First, make sure your compensation program totally supports the elements of your long-term, customer-focused mission. If instead you’re actually incentivizing anti-customer behavior as a way to drive short-term financial performance, something is dreadfully wrong. Second, create and continually enforce a culture of teamwork and integrity. It should not be an every man or woman for himself atmosphere. Make it all about working together to accomplish company goals. Finally, base your bonus system on profit not sales. Driving up the top line by giving away the store is not a sound strategy.

Next Steps

Do an assessment of all of the elements of your current compensation and rewards program. Include candid discussions with employees at all levels of your company regarding which elements they value, which they don’t, and what they’d like to see. You might be surprised by what you hear. Think through what behaviors are really being encouraged and discouraged and then consider what changes might improve results as well as employee morale and retention. Before you implement any changes, go back to your employees and get their reactions to multiple possible alternatives so they won’t be blind-sided. Regardless of what you do or don’t change, make a practice of reviewing your entire program at least once a year.

If you’d like more information or assistance, consider taking advantage of JPMA’s CEO Mentor Program. Check the web site for more information or contact Kyle Schaller at kschaller@jpma.org.