The Impact of Money on Employee Motivation

Are you puzzled by how to motivate today’s employee?

You’re not alone. It can be quite puzzling because not everyone is motivated by the same circumstances, and each individual’s own motivation may differ from time to time depending on their personal circumstances at that time.

Hey, Doug Phelps here. I am the founder of Management Consultants for Contractors and Phelps Internet Marketing Group. Thanks for stopping by to view my video about the impact of money on employee motivation. I have been involved in construction since 1974…yup, that’s a long time… and I have been consulting to small and mid-sized contractors since 1995. This is the first follow up video about how to get more out of your employees by creating a more motivating work environment.

I started my construction career as an ironworker and was moved into an office management role at a very young age…and without the proper training. I once got into a discussion with a colleague who complained that the company was thankless. I told him that the company thanked him every week with a paycheck…and I truly believed that. I was really old school. By way of the school of hard knocks, I gradually learned that there was a lot more to providing a motivating environment than a weekly paycheck.

Many business owners, and it seems very prevalent in the construction industry, believe that money is the primary motivator of their employees, yet their compensation policies unintentionally do the opposite.

Is this your company?

• IS COMPENSATION A MYSTERY TO YOUR EMPLOYEES?
• DO THEY HAVE TO ASK FOR A WAGE INCREASE?
• ARE YOU CONCERNED ABOUT TOM, DICK, AND HARRY SHARING INFO ABOUT WHAT EACH OTHER ARE PAID?
• DO YOU HAVE SOME EMPLOYEES MAKING MORE THAN OTHERS AND WONDER HOW THAT CAME ABOUT?

I have surveyed thousands of construction workers and office employees over the past 15 years. A question I asked on most surveys was, “What motivates you to do your best?” While there was a wide range of responses, including money, the most common answer to the question was “pride”. And that is why you cannot motivate an employee. Motivation comes from within. Having said that, you can demotivate an employee.

You as an owner or manager are responsible for creating a motivating work environment. And yes, money is part of that environment. As I said in my first video about employee motivation, money is what makes employees come to work. It does not make them work any harder once you’re there. Having said that, some companies’ compensation policies do more harm than good.

To keep that from happening, here are 3 things you should do to get the most out your compensation plan.

1. Foremost, the combination of pay and your fringe benefit package has to be competitive for your industry. You’ll know if you’re competitive or not when you try to recruit new workers or if you have a lot of employee turnover related to wages. Sounds simple enough. But this alone is not enough
2. Your compensation policy must be perceived to be fair by the employees. And here’s how to make sure that happens:

• a. If you don’t already have one, establish a skill-based classification compensation plan. Components of this are:
  • a.i. Defined worker classifications. If you’re an electrical contractor the classifications could be helper or apprentice, electrician, master electrician, technician, foreman, etc.
  • a.ii. Defined skill set per classification, with a grading system. Think about that for a minute. Again in the case of an electrical contractor, the electrician should have more skills and abilities than an apprentice, and a master electrician more than an electrician, etc. List and categorize those skills sets. This is the hardest or most time consuming step of developing this system.
  • a.iii. Defined pay range per classification
  • a.iv. And make it well known for all your workers!

The beauty of a skilled-based compensation plan is that your pay scale is no longer a guess by the employees. Field/shop workers talk about their pay amongst themselves all the time anyway. With the skill based compensation system, your employees will recognize that it is a fair compensation plan.

If implemented correctly, employees understand what they have to do to increase their pay…essentially placing the responsibility of what they can earn on their shoulders, and not on the company. Think about that. Remember when I said that motivation comes from within. The employee is responsible for his/her earnings. Not the company. This is part of creating a motivating work environment. You want to make more money? Here’s what you need to do.
Go for it!
And now the third component

3. A formal annual (at least) performance review combined with a compensation review tied in with the skill based classification compensation plan. Their pay range is dependent upon their classification and their actual pay is determined by how effectively they apply their skills. It is merit-based. With the combination of a defined compensation plan and performance reviews, any employee will understand what they have to do earn more money….again, making it their personal responsibility.
The employee performance review is a good example of showing how human motivators are inter-connected—just pieces of the puzzle. Not only does the performance review fit in with discussions about money, it also fits in with the motivators of recognition, appreciation, and pride.

The ultimate goal of the performance evaluation is to provide feedback to the employee which will help him/her improve their performance so that they can earn more money by becoming more valuable to the company. A performance review should be exactly that—a review of what you have already told them about their performance over a period of time. It is conducted in a formal setting with written documentation for their personnel folder. A poorly conducted employee performance review can also demotivate an employee.

Here are 3 things to never do when giving a performance review to an employee:

1. Don’t be licking your chops and zing them with something you have saved up for just this moment. In other words, never surprise them with criticism that they have never heard before.
2. Don’t focus on just recent performance. Evaluate their entire body of work since the last formal review.
3. Never get into an argument.

Do any of the above, and you will delete any benefit that is to be derived from the performance review. In other words, the process will most likely demotivate the employee instead of elevating their performance.

In the absence of a comprehensive defined compensation plan with a performance review system….

1. Compensation becomes a mystery to the employees. They have to resort to waiting for a raise or they have to ask for a pay raise. That shows a lack of respect or lack of appreciation for their contribution to the company. Recognition and appreciation are also very important human motivators, and the lack of a defined compensation plan can also negatively impact these motivators.
2. The squeaky wheel syndrome…giving increases to only those who ask …can lead to a perceived unfair compensation policy. Employees want to be treated fairly. Those that believe they are being treated unfairly take it out on their employer by performing poorly.

Is money a motivator? It is for some employees. And your compensation policies are an important ingredient in developing that recipe of creating a motivating work environment. The key is to make sure that money does not become an issue which demotivates your workforce. Remember, companies don’t make profits, people do.