Innovative Employee Reward Systems Beyond Equity Compensation

The Key Drivers of Employee Motivation and Morale

In the book First, Break All the Rules: What the World's Greatest Managers Do Differently, authors Marcus Buckingham and Curt Coffman assert that employee satisfaction is not tied to compensation as tightly as the business world has long imagined. Hard though it may be to believe, several key elements reportedly have a stronger influence on employee morale and engagement than wages, salaries, or bonuses. During their association with the Gallup Organization, Buckingham and Coffman concluded that the answers to the following twelve questions help a manager identify the key drivers of employee motivation, morale, loyalty, and ultimately, staying power in a job or position:

Companies are apt to structurally and visibly package their compensation in a manner that makes it seem larger — and more beneficial to the employee — than it may be in the cold, hard light of day. For instance, Wendy's touts a long list of employee benefits on sandwich boards set up in front of their establishments. Starbucks refers to its "Whole Bean" or "Special Blend" benefits package, using monikers such as "Future Roast 401(k)," "S.I.P." (the discounted stock purchase plan), and "Bean Stock" (restricted stock units). The bottom line is that many partners — as Starbucks refers to its employees — will not be able to afford to participate in equity-based rewards due to their low wages.

An equity-reward system costs a company capital or resources, and as a result its benefits may be restricted and unavailable to all employees. By contrast, the key influencers of employee morale central to the First, Break All the Rules approach carry no primary associated costs. The secondary costs of, say, having a manager remember to inquire with genuine interest about how an employee's work, day, or career is going are quite small — as reflected in questions 5, 6, and 11 of the twelve listed above.

The Structure and Appeal of Competitive Compensation Packages

An equity-based system of rewards generally includes one of the following arrangements: (1) direct equity, which is the issuance of company stock or membership interests to an employee; (2) incentive stock options (ISOs); or (3) deferred compensation. Each of these equity-based systems is focused on assuring the continued employment of the participant — for as long as the employee-employer relationship is desired by the company — and on encouraging superior performance while employed in an eligible position.

The First, Break All the Rules approach to management is fundamentally unrelated to a system of equity-based rewards. An underlying tenet of the approach is that a supervisor should manage to the strengths of the employee, capitalizing on what the employee does best to generate both synergy and a healthy return on investment (ROI) in human capital. However, the relationship between that philosophy and equity-based rewards is, at best, a tangential one.

Comparing Equity-Based and Creative Reward Systems

Warren Buffett has refused to give options to top managers and does not hold to the idea of linking equity reward systems to market price (Robbins, 2004). Buffett's rationale is that a manager can sit on his hands, essentially doing nothing, and — given the reinvestment of the company in its existing business — watch stock prices and return on equity (ROE) rise (Robbins, 2004). The result is that executive stock options of partners who are merely taking up space can accrue worth in the millions (Robbins, 2004). Underscoring his outstanding business acumen, Buffett grants generous annual bonuses that are contingent on performance results exceeding the ROE of his companies (Robbins, 2004).

A manager who holds to the First, Break All the Rules approach will focus on strengthening employees' experience while they perform their duties, knowing that more robust performance and greater longevity in a position will follow from solid, authentic implementation of the model.