Pulling a rabbit out of a hat.

How to reward employees when a raise isn't possible

One of your employees has just helped you complete a challenging and highly visible six-month project ahead of schedule and under budget. You want to reward her for consistently good performance, but salary reviews aren't for another six months, and even then you can give her only the standard 4% raise. What else can you do to show your appreciation and keep her motivated and committed?

It's no secret that managers often feel limited by inflexible pay policies that keep them from giving well-deserved raises to valuable employees. According to Hewitt Associates, a benefits consulting firm in Lincolnshire, Illinois, raises have hovered around 4% since the early 1990s.

With such modest pay hikes, Hewitt reports that 65% of the 1,244 companies it surveyed are now using variable compensation plans to reward employees who exceed performance standards or meet business goals. Usually a lump sum, variable pay can range from 4% to 5% of base salary for junior-level employees and 7%-8% for senior staff. Payments could also include stock grants, restricted stock or stock options. In addition to variable pay, companies are adopting these two new pay strategies:

* Broadbanding. Two or more jobs are collapsed into one to expand pay ranges. For example, the salary ranges and job responsibilities for a junior auditor and a senior auditor would be combined into one "staff auditor" position with a broader pay range. In this way, managers could grant raises based on merit rather than job titles.

* Skill-based pay. This strategy links pay to specific skills the employee has learned on the job. This requires thorough analysis and proof of specific skills learned--for instance, an accountant passing the CPA exam.

Motivation experts say a variety of rewards is needed to keep today's employees happy. Besides bonuses and cash awards, "employees often view money as something that's owed them," says Bob Nelson, president of Nelson Motivation Inc. in San Diego and author of 1001 Ways to Reward Employees (Workman, $10.95). Employees are looking for "a more balanced lifestyle, flexibility and more meaningful control over their work," says Nelson, who advises managers to use frequent discretionary rewards that don't rely on the company's pay or promotion policies. Some ideas to consider:

* Time off. This is one of the most popular perks. If work is completed satisfactorily before a deadline, give the employee extra time off as a reward, or allow him to "bank" the time to use as extra vacation or personal days.

* Travel/field trips. Varying in cost, these can range from an all-expense-paid day at a health spa to a trip for two to Hawaii. Also popular are adventure field trips, such as sending employees to a two-day racing school or offering a skydiving package that includes a six-hour introductory course.

* Special training. Pay employees' professional dues, magazine subscriptions or fees to attend special seminars, workshops and conferences they're interested in.

* Matching charitable contributions. Giving dollar for dollar to employees' favorite charities in their name not only instills good will, but is also a greater write-off for them. Allowing them time off to volunteer for that cause is also an option.

* Increased responsibility and visibility. Give special assignments to employees who've shown initiative. Allow them to serve on a task force with members of senior management or to choose their next assignment.

When doling out rewards, it's important to match the reward with the person and the achievement, says Nelson. Don't wait too long before giving the reward and make sure employees know why they're being recognized. A happy employee is a productive one.