As the war for talent rages on with unemployment in the neighborhood of 4 percent, companies are challenged to discover and implement innovative retention strategies.
The value of timely, specific, peer-to-peer employee feedback continues to build momentum. Similarly, recognition of jobs well done and pay for performance are givens for companies that want to recruit, develop, and retain the kind of employees who grow the business and profits.
But not all systems of tying together feedback, recognition, and pay are created equal. And organizations won’t maximize their return on these investments unless they successfully integrate the underlying processes and structures, hence rearchitecting pay.
Most HR processes have been modernized except for pay structure, and that’s where crowdsourced pay comes in. Perhaps a more specific definition is crowdsourced variable pay – where a small portion of the overall payroll budget is devoted to crowdsourced methods, like social recognition.
Crowdsourced pay is effective and efficient because it empowers everyone in the organization to award part of that variable-pay investment to multiple employees many times a year. Such a system creates a greater impact than lump-sum bonuses given annually.
But before we dive into how crowdsourced variable pay works and what it’s good for, let’s talk about why aging strategies like 360-degree feedback and annual bonuses tied to annual reviews are no longer sufficient.
Why old pay-for-performance solutions no longer cut it
A shortcoming of annual bonuses is that – well, they only come once a year. “People need very frequent recognition,” says Heather Younger, a management consultant and CEO of Customer Fanatix. She believes that, ideally, recognition should come weekly, or as often as anyone in the organization – peers, manager, or top executives – sees someone doing good work.
The problem with annual performance evaluations that incorporate 360-degree feedback is that their motivational effects fade quickly in the human psyche. That’s just our nature. By contrast, real-time feedback – and the engagement it drives – can lift performance continuously, by recurring frequently.
While two-thirds of HR professionals believe that feedback from peers can have a positive impact on the organization, only 29 percent report that their company makes systematic use of peer feedback, even occasionally, according to a 2018 employee recognition report from SHRM/Globoforce.
Where does crowdsourced pay get its power?
Crowdsourced variable pay is immediate and frequent, and reinforces ties among employees. “When we do peer-to-peer bonuses, it promotes the team mentality,” says Younger. Fifty-four percent of HR professionals believe employee empowerment should be a key driver of recognition programs, according to the SHRM/Globoforce survey.
“I believe in crowdsourced recognition because it takes some pressure off managers who can get so bogged down in everything they have to do,” says Younger.
How crowdsourced pay works
So how does crowdsourced pay integrate peer feedback, employee recognition, and variable pay?
With crowdsourced pay, a small percentage of the payroll budget is allocated to this form of variable compensation. Employees are given the power to grant each other micro-bonuses in the form of points that can be used for merchandise or gift cards, always accompanied by a statement of why the recipient merits the bonus.
Such a system of recognition is gratifying to both the giver and the recipient. “The notion is that co-workers know who the top performers are,” says George Benson, director of the master's program in human resource management at the University of Texas in Austin. “And crowdsourced pay can encourage collaboration and teamwork.”
Why crowdsourced pay creates superior value
Crowdsourced variable pay provides superior value for the payroll dollar when it’s awarded as points that can be redeemed for merchandise or gift cards closely tied to consumables that employees want. “Goods and services are far more re-enforcing than cash,” says Jim Brennan, a compensation consultant in New Braunfels, Texas.
A crowdsourced pay system that’s implemented in the cloud increases the positive effects of rewards on employee engagement by streamlining the whole process. “Crowdsourced variable pay is nimbler than cash compensation,” says Brennan. “The faster the consequence, the stronger the impact on the recipient – that’s human nature. The speed of the reward determines the intensity of the response.”
Adding crowdsourced pay to compensation structures doesn’t necessarily mean increasing a company’s total payroll budget. “Crowdsourced variable pay can be self-funding,” says Brennan. “It will come out of productivity improvement, which makes it easy to sell to management.”
The peer feedback may give rise to “concerns that some people would say inappropriate things,” says Benson. “But case studies say that is not the case, because the feedback is not anonymous.” A streamlined, backend approval process can also alleviate concerns around sensitive messages or gamification.
Boosting employees boosts retention
With the labor economy of 2018 close to full employment, worries about employee retention have spiked. Retention is the top-ranking workforce management challenge in 2018, say 47 percent of respondents to the SHRM/Globoforce survey.
To optimize retention, organizations need to be more focused on recognition, according to Younger. “I love the idea of people promoting the great things that their co-workers are doing,” she says. “Recognition gives people a dopamine boost.”
About the Author
John Rossheim writes about healthcare, diversity, recruiting and human resources.More Content by John Rossheim