Are You Rewarding Your Employees Fairly?

Are employees at your small business being rewarded fairly for their efforts? Think carefully—this is a loaded question. What matters isn’t whether you believe they are being rewarded fairly, but whether they think they are.

Why should you care what your employees think about this? Well, workers who don’t feel they are fairly rewarded are likely to become resentful and seek to leave your business at the first opportunity. With the current economy, of course, that might not happen right away. But while these workers are “stuck” at your business, do you think they’re putting forth their utmost effort?

reward podium

I’m bringing this up because of some interesting results from a new study by WorldatWork, Hay Group and Loyola University Chicago professor Dow Scott. The researchers found that neither raises nor salary alone has the biggest impact on employees’ perception of how fairly they are being rewarded at work.  Instead their top five factors were:

  1. Career development opportunities
  2. Merit increases
  3. Base pay amounts
  4. Non-financial recognition
  5. Employee development/training

(Surprisingly, incentive pay such as bonuses didn’t even make the top five.) There’s good news and bad news for small business owners here. First, raises and salary, while not number one, were still high on the list. And one reason many respondents felt they were not fairly rewarded was the tough economy, which has led to pay cuts and freezes.

There may be nothing you can do about that at this point. That’s the bad news. The good news is that career development opportunities are something all small businesses can offer. Look into cross-training, adult education programs, and affordable training opportunities such as online webinars or online education offered by your industry association or trade group.

Of course, after they receive training to increase their skill set and experience, employees want to feel that there’s somewhere they can go in your organization to use that experience. But four years into an economic slump, taking on new responsibilities without additional pay isn’t likely to make them jump for joy. If your small business isn’t growing sufficiently to reward new skills with salary increases (not just new titles), what can you do?

One idea is to institute profit-sharing programs. Tap employees who have learned new skills to head up new initiatives and ideas in your business. In other words, create “intrapreneurs.” Develop a plan that rewards them by sharing the profits from the new idea if it takes off. This is a great way not only to reward your people, but also to propel your business right out of a slump.

Whatever types of rewards you choose for your team, the survey found some strategies that help increase employees’ perceptions that they’re being fairly rewarded. Good communication, well-designed rewards programs and non-financial recognition worked especially well.

What hurts employees’ perceptions they’re being fairly rewarded? It should be obvious, but being inconsistent about applying rewards and “playing favorites” were cited as among the top reasons employees don’t think rewards in their companies are fair.

Rieva Lesonsky Rieva Lesonsky is a Columnist for Small Business Trends covering employment, retail trends and women in business. She is CEO of GrowBiz Media, a media company that helps entrepreneurs start and grow their businesses. Visit her blog, SmallBizDaily, to get the scoop on business trends and free TrendCast reports.