Getting the best from staff.

Success in any undertaking requires more than ability and resources; it also depends on motivation. Without it, the resources and service capacity of your firm cannot be fully realized. What then can a firm or company do to ensure that employee drive does not wither away and die because of inadequate or inappropriate compensation and promotion practices?

Most important, managers must understand that annual raises and promotion opportunities aren't always enough. Managing the changing needs of professional staff requires individualized attention, specialized incentive programs and compensation plans more closely tied to individual achievement and performance. This article examines what it takes to motivate a professional staff and lists both monetary and nonmonetary methods managers should consider when planning compensation for their employees.

WHAT MOTIVATES PROFESSIONAL STAFF?

Do not expect a standard compensation plan or a firmwide incentive program to have. the same effect on every employee. To produce top performance, compensation plans and incentive programs must be tailored to meet the specific needs of each employee. Employees of different ages, experience and responsibility levels also have varying needs over time. That is, the impact of monetary incentives usually diminishes as employees get older and gain job experience, while nonmonetary incentives, such as challenging assignments, special projects and personal recognition, grow more important. Therefore, managers must not only tailor incentives to specific needs but also consider reevaluating each incentive program to accommodate their employees' needs.

KEEPING YOUR BEST

The most common compensation scheme involves periodic pay raises tied to an employee's performance review. These reviews determine the employee's pay level and rank according to firmwide salary standards and fixed promotion criteria. However, the difference in pay raises given to average and top performers often is negligible. The result may be salary increases that disappoint the firm's most valued employees. Such methods of compensation can actually reduce employee performance and lower morale. For example, in Punished by Rewards (Boston: Houghton Mifflin, 1993), Alfie Kohn said that "not receiving a reward one had expected to receive is ... indistinguishable from being punished." According to the book, whether an incentive, such as a good pay increase, is withheld or withdrawn deliberately, the effect is identical. And the more desirable the reward, the more demoralizing it is to miss out.

Managers need to consider more creative ways to link paychecks to the firm's goals and objectives. An obvious first step is to review the firm's current salary standards and promotion criteria -- managers may find their efforts to streamline staff and cut costs have left them with a pay structure that fails to adequately reward their best employees.

Expanding pay ranges within job categories. If a firm's payroll guidelines permit substantial raises only in conjunction with a promotion in rank, the firm should consider broadening pay bands for each position or job level so top performers can be suitably compensated without promoting them too rapidly or beyond their levels of ability. The goal is to reward outstanding performance without linking pay raises directly to employee advancement. This technique, known as broadbanding, is one of the fastest growing alternative pay strategies. For example, a firm with two levels of staff accountant -- junior accountant and senior accountant-usually provides specific job descriptions for each position and uses a salary range that fixes a maximum amount of compensation for each level. To receive compensation higher than the fixed amount, the junior accountant must be promoted to senior accountant.

Under a broadband approach, the two job titles would be collapsed into a single position, staff accountant, with compensation tied to individual performance. The range of compensation also would be expanded to permit more meaningful pay raises to those who excel on the job. Linking pay raises to individual performance allows managers to make assignments and grant pay raises based on merit rather than job tide.

Mixed-cost compensation plans. Traditionally, employers are unwilling to grant large pay raises early in an employee's career since such increases immediately raise the firm's fixed personnel costs. A high level of fixed costs drains profits and often results in painful staff reductions during economic downturns. Consequently, many firms have abandoned fixed-cost compensation schemes in favor of plans that provide both fixed and variable components.

The fixed or "base pay" component of the employee's paycheck is subject to the usual performance review and pay raise criteria established by firmwide compensation policies. The remaining portion of the employee's paycheck, however, is variable and depends on the staff member's contribution to the goals and objectives of the firm. This at-risk component might range from 4% or 5% for a junior-level position to 10% or 15% for senior staff.

The variable component is often referred to as "merit pay" and given in the form of a lump-sum payment. While base pay can increase modestly from year to year, it also can be frozen during periods of slow economic growth. This type of compensation plan allows firms to gain more control over fixed costs. It also helps to break down the perception among some employees that annual pay raises are a kind of employee entitlement. Most important of all, mixed-cost compensation plans provide firms with a mechanism for linking pay to performance.

Competency-based pay. Although it is not widely used, competency-based pay is another technique for linking compensation to performance. In this type of plan, employee compensation is based on the acquisition of new skills rather than job title or position. It requires thorough analysis and documentation of the specific skills required for each job level so firms can map the progress of individual employees against predetermined criteria.

Some measures of professional competency, such as passing all parts of the Uniform CPA Examination or achieving high marks in the firm's professional training programs, might be considered for special, lump-sum awards. Such compensation rewards individual performance and brings long-term benefits to the firm. It also helps to ensure the firm receives maximum value for its training dollars.

Special monetary awards. Some CPA firms give senior staff members the opportunity to grant special incentives directly to those they supervise. This type of compensation may be particularly helpful in motivating younger, less experienced staff. An article to be published in the fall in Internal Auditing ("Motivating Effective Performance in the Internal Audit Department") describing a recent study reveals that internal auditors without previous job experience assigned greater importance to monetary awards than did older, more experienced auditors. Of course, the experienced internal auditors also thought monetary awards were important -- but not to the same extent as the younger ones did. This suggests that small awards given to new staff members may have a disproportionately positive impact on employee motivation.

Timing of monetary incentives. Even if compensation is closely tied to performance, most managers know that the motivational impact of additional compensation is, at best, short-lived. While some employees may respond with a sudden burst of energy, many employees regard increased compensation as a reward for past performance. Its effect on future performance is often difficult to assess.

One way to address this problem is to modify the timing of compensation increases. For example, in a mixed-cost compensation scheme, lump-sum payments for exceptional performance might be awarded on a quarterly or seasonal basis rather than once a year. The firm might even consider scheduling professional training programs during periods when compensation increases are not ordinarily available to help prolong the motivational impact of monetary incentives. None of these compensation strategies, however, necessarily addresses the specific needs of those who are looking for something other than monetary rewards.

NONMONETARY INCENTIVES

Proper motivation of senior staff professionals usually requires incentives tailored to meet their individual needs. If a member of senior staff is motivated by challenging assignments or by more variety in job activities, engagement schedules should be arranged to accommodate such needs.

How can managers know the inner needs of individual employees? They can begin by asking. Annual or quarterly performance reviews provide an obvious opportunity to learn more about individual employee needs. Good managers, however, will not wait for scheduled interviews to learn about their professional staff -- there are ample opportunities during any engagement, whether on the job, at lunch or during social encounters away from work.

Creative alternatives to money. Free time is one of the most valued commodities for most accounting professionals. For single employees or members of two-earner households, firms might consider providing "concierge services' " Chicago-based Andersen Consulting arranges for people to be at employees' homes to let repairmen in or to take employees' cars to service shops for repairs and maintenance. Freeing professional staff members from such responsibilities can have a significant impact on employee morale and motivation.

Other forms of nonmonetary employee benefits offered by many larger firms include fitness centers and child care facilities. As the composition of the professional workforce changes, so do employee needs and values. Many young professionals today worry about balancing work life with family life. Employers that attend to these special needs often find the added costs of such benefits are more than offset by increased productivity and improved performance. For example, according to the November 18, 1996, issue of Forbes (page 167), the American Bankers Insurance Group has spent $2.4 million to build a satellite public school at its corporate headquarters in Miami. The company also pays the school's annual operating expenses. Employees have enrolled 225 children in the school and the turnover rate has dropped to 5% from 13% for employees with children.

Time off. In some CPA firms the only reward for timely and efficient completion of an assignment is the opportunity" to start the next assignment ahead of schedule. The same rule is often applied to specific tasks. Instead of finding work to fill a given time period, managers should consider more effective ways to reward efficiency. Staff members who provide quality services in less than budgeted time should see some immediate benefit. A written comment regarding the employee's efficiency as part of an annual performance review has virtually no motivational value. Near-term rewards, such as paid time off, provide much stronger incentives.

If permitting unscheduled time off is regarded as too disruptive, managers might consider allowing employees to "bank" the time they save through efficient work habits. With appropriate advance notice, staff members could use banked hours at their own discretion for personal leave or for any other purpose. Time banking might be especially effective as a motivational tool for those who value personal freedom and independence.

Personal recognition. There are many ways to motivate improved performance that cost little or nothing. These range from a simple expression of thanks to public recognition at a luncheon or awards banquet. Capable employees value the recognition and support of their managers. A personal note or other token of appreciation can motivate performance well beyond the time or cost involved in providing such recognition.

THE SELF-MOTIVATED PROFESSIONAL

A mature professional will come to regard effective client service as its own reward. Such individuals are not immune to financial incentives or personal recognition, but neither are they dependent on them to do their best work. Self-motivated professionals set high goals, pride themselves on their achievements and regard their shortcomings as areas for growth and development. They are self-confident in their abilities, yet realistic enough to know there is always room for improvement.

Most accounting professionals develop a considerable measure of self-motivation long before they enter the job market -- the typical accounting curriculum and the time required to complete it demands this skill. Even those who are self-motivated, however, can be negatively affected by firmwide policies that fail to provide adequate incentives for exceptional performance or disregard the changing needs of employees. A CPA firm that links pay to performance and tailors its monetary and nonmonetary incentives to meet the specific needs of its employees can increase firm productivity, improve the quality of its client services and draw out the best in its professional staff.

EXECUTIVE SUMMARY

* ANNUAL RAISES AND PROMOTION opportunities aren't always enough. Managing the changing needs of professional staff requires individualized attention, specialized incentive programs and compensation plans more closely tied to individual achievement and performance.

* A STANDARD COMPENSATION PLAN or a firmwide incentive program win not have the same effect on every employee. The impact of monetary incentives may even diminish over time, and nonmonetary incentives could be more important to some staff.

* REVIEW YOUR FIRM'S current salary and promotion criteria. You may find that efforts to streamline staff and cut costs have left you with a pay structure that fails to reward your best employees adequately.

* CONSIDER REPLACING YOUR old compensation scheme by expanding pay ranges within job categories or using mixed-cost or competency-based incentive plans.

* IF YOU SUCCESSFULLY LINK pay to performance and tailor your monetary and nonmonetary incentives to meet the specific needs of each employee, you can increase firm productivity, improve the quality of your client services and draw out the best in your professional staff.

New Incentives: Alternative Career Paths

Public accounting firms often expect their most talented employees to work as long as it takes to get the job done. For many CPAs, that means 12 or more hours a day and weekends at the office, especially during tax season. Those who choose not to schedule their lives around work frequently are left out of decision making, and most have to change firms to find better jobs.

However, one CPA firm in Dayton, Ohio, has found it can get the best from its employees by giving them time to enjoy life outside the firm. Rita A. Keller, a principal and director of administration at Brady, Ware & Schoenfeld, told the Journal the best thing she does to keep her professional staff motivated is to offer them an alternative to the "move up or out" philosophy of many of her competitors. Her 68-member firm has developed alternative career paths that allow professionals who have chosen not to be partners to continue to advance in the firm and earn good salaries.

"We recognize that some of the new generation of professional staff just won't commit to 60 or 80 hours a week, even during the busy season," said Keller. "We have developed the position of 'career manager' for staff who don't want to make partner but who also don't want to leave our firm or the profession."

According to Keller, career managers enjoy the same respect around the office as the partner-track managers do. "They have the same input and they attend all the managers' meetings," said Keller. "The difference is, they just don't spend as much total time in the office or on practice development."

For example, one of Keller's senior managers works one day a week during the summer and is never in the office during school holidays. Nonetheless, as the firm's tax manager, who chairs its tax committee, she keeps a very high profile. "She had passed the Uniform CPA Examination with the highest score in Indiana, and we knew she had what it takes when we hired her," said Keller. "Her husband is a dentist, they have three children and she wants to spend a lot of time with her family." Keller said having people work different hours is not a problem in the firm because everyone has the opportunity to choose his or her own career path.

Incentives at home

Keller's firm uses another unique method to hone the technical skills of each of its employees. It budgets a $2,000, interest-free loan for each employee to purchase a personal computer for home. "We observed that most of our staff accountants were not as proficient on the computer as we had thought," said Keller. "We decided to help them each get a PC so they can experiment with applications at home and learn many of the skills they need on the job." Keller said it was a significant investment for the firm, but it has paid off in training costs. The firm sets up one-year payment plans for employees who choose to buy the PCs.

In her work with professional organizations (she is a past president of the Association for Accounting Administration) Keller has found many firms do not focus on the direct connections between motivating personnel and business success. "Firms really need to get on the bandwagon and use all the means possible to make their practices run more efficiently so more profit drops to the bottom line."

Must Reading

Here are some books to help you identify the dos and don'ts of motivating your staff.

* The Effective Executive by Peter E Drucker. New York: Harper & Pow, 1967.

* Gaining Control by Robert E Bennett, Kurt Hanks and G. L. Publisher. Salt Lake City: Franklin Institute, 1987.

* How to Get People to Do Things by Robert Conklin. Chicago: Contemporary Books, 1979.

* How to Recognize and Reward Employees by Donna Deeprose. New York: AMACOM, 1994.

* Motivation and Personality by Abraham H. Maslow. New York: Harper & Row, 1970.

* Motivation in the Real World by Saul W. Gellerman. New York: Plume, 1992.

* 1001 Ways to Reward Employees by Bob Nelson. New York: Workman Publishing, 1994.

* People, Performance, and Pay by Carla O'Dell. Houston: American Productivity Center, 1987.

* Punished by Rewards by Alfie Kohn. Boston: Houghton Mifflin, 1993.

* Rewarding and Recognizing Employees by Joan P. Klubnik. Chicago: Richard D. Irwin, 1995.