A New Carrot-and-Stick Approach

Too many companies think compensation is a silver bullet that management can use to change employees’ behavior, some experts say.

“Companies often go to that as a first lever to improve performance,” said Tony Rucci, vice president of administration at Sears, Roebuck & Co.

But tinkering with pay scales alone will not work, Rucci believes, unless “employees first understand strategic vision and goals and are allowed a participative role in how those goals are going to be achieved and shared.”

So Sears has come up with a new “goal-sharing” initiative, hoping to succeed where so many other companies have failed.

A recent survey by Watson Wyatt Worldwide, a Washington consulting firm, found that employees in only a quarter of 694 companies surveyed “fully understand and greatly value the reward plans.”

It’s a key reason why “traditional award plans, like merit pay and annual bonuses, are falling short,” said Jerry McAdams, a Watson Wyatt specialist in reward and recognition systems.

Four in five companies concede their traditional reward plans “have only limited impact on the behaviors they are trying to encourage,” the survey said.

While only 6% of the firms surveyed “significantly involve their employees in plan design,” Sears stresses employee involvement from the outset.

About 10,000 Sears workers are involved in goal-sharing programs, which can add as much as 10% to their paychecks if goals are met, Sears officials said. Sears employs about 275,000, some 200,000 of them in retailing.

Under goal-sharing, employers act on employee suggestions for improvement and share any resulting profit with them.

“Goal-sharing takes associate involvement one step further,” said Jane Floyd, strategic initiative director at Sears. It “involves more employee education and participation, more decision-making responsibility and, most importantly, it provides associates with the opportunity to gain more experience and develop a broader skill-set.”

As a result, Floyd said, “the real incentive becomes the long-term possibilities for advancement, increased responsibility and professional growth, rather than the immediate financial rewards.”

It begins with associate “education and business literacy,” then proceeds to “a full program that includes compensation for achieving goals,” said Ken Hux, a vice president at the nation’s second-largest retailer.

After orientation, a group of employees offers suggestions to a committee of peers and managers. If adopted and executed successfully, the workers share a portion of the profits.

According to Woodruff Imberman, of Imberman & DeForest, an Evanston, Ill., consulting firm, about 3,000 companies with 1 million workers use goal-sharing with extra compensation built in if goals are met.

Imberman said the number of involved companies has doubled in the past five years. Managers see goal-sharing as a way “to save money and wind up with lower costs and better quality,” he said.

Retailers have not previously used goal-sharing to improve performance. Their sales staffs customarily are paid a salary and commission.

“At several other companies I worked for previously, I was never allowed to make decisions,” said Carolyn Bernstein, an administrative assistant at Sears who participated in goal-sharing. “Now I’m required to. I get to chair committees.”

“I used to think that compensation was what motivated me but I’ve found that skills and learning and the education that I’m getting [from goal-sharing] are worth more to me than the compensation.”

Rucci said that it takes a Sears unit several months to develop a “true goal-sharing” plan.

“You’re sharing information [with employees], creating a dialogue, suggesting ideas, and establishing meaningful goals about how much improvement is needed to get the payout,” he said.