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Managing Talent in a Recession

Value-Based Motivation

The actions of corporations during the current recession can have a significant impact on the motivation of their employees. Doing the right things can motivate them to perform well during and after the recession; doing the wrong things can have short-term and long-term negative effects on their motivation. Before discussing what an organization should do, it is worth taking a moment to briefly state what we know about motivation.

Individuals tend to be motivated to perform in a particular way when they are rewarded for performing in that way. How motivated they are is a function of how clear the connection is between rewards and performance, and how valued the rewards are.

How Recessions Change Values

One thing that makes motivation particularly difficult to manage is that individuals differ significantly in what they value and events can change what they value. What is very rewarding for some individuals, say, a day of golf with the boss or even an all-expenses-paid vacation trip to Hawaii, may not be seen as a reward by others. The same thing goes for praise by the boss and most forms of recognition.

Recessions can have a significant impact on what people value. Not surprisingly, job security, and financial rewards tend to become more important in periods of recession. It is particularly important that organizations skillfully manage these two drivers of employee motivation during recessions. How they manage them needs to be fine-tuned to the business strategy and how a company is affected by the recession.

In a recession, organizations can forego pay increases and bonus payments without risking high turnover, but motivation is at risk. The market for most employees is very weak, and as a result only a few have the opportunity to leave. Often it is only the very best employees that have the opportunity to leave, so organizations should focus on creating a financial reward package that retains the very best employees and motivates all employees.

Rewarding Alternatives

What is the right approach? It definitely isn't just pay freezes and cuts, or for that matter merit-based pay increases. Organizations should consider giving stock options or stock grants to all or most employees. Recessions are a particularly good time to introduce stock incentive plans, because company stock often is at a depressed price and as a result employees may end up getting a bargain. Stock can have a long-term and short- term effect on their motivation as well as act as a long-term retention device.

Retention bonuses and performance bonuses for exceptional performers are alternatives that warrant consideration if a firm can afford them. Knowing that there are financial rewards for performance can be a positive motivator. In order to pay for performance, a good performance management system and good data on who the critical employees are is required. If the existing performance management system doesn't provide this information, it is a good time to install one that does.

Job security can be an important motivator of performance. In order to be a motivator, however, individuals must see a connection between their performance and the retention of their jobs. They are only likely to see this if there is a clear organizational policy with respect to why people are laid off. Seniority-based layoffs clearly do not motivate performance.

The Limits to Job Security

Layoffs that are based on the performance of individuals and/or groups are a different matter. Simply stated, the reality is employees will work harder in order to maintain their jobs during a period of recession only if they see a connection with job security.

The biggest problem with a job performance-based job security approach to motivation is that it may lose its impact once the recession is over and the labor market improves. At that point an organization which has put a major emphasis on performance-based downsizing needs to seriously decrease its emphasis on job security as a motivator and focus on giving financial rewards for performance.

Even the best approach to using pay and job security to motivate performance cannot be successful without the right leadership. Motivating the right behavior requires a clear vision of the way forward and goals to be accomplished. Establishing them requires transparency so people know what is happening to the business and it requires leaders who can build trust and set goals that are motivating.

Edward E. Lawler III ( is the author of Talent: Making People Your Competitive Advantage (Jossey-Bass, April, 2008) and Distinguished Professor of Business at Marshall School of Business at the University of Southern California. A leader in the fields of organization development and HR management, he is also director of the Center for Effective Organizations at USC.

Ed lawler
Edward E. Lawler III specializes in theory, research, and practice in the fields of human resources management, compensation, organization development, and organization effectiveness. A professor of business at the University of Southern California Marshall School of Business, he is also the founder and director of the university's Center for Effective Organizations. He has written more than 40 books, including Management Reset: Organizing for Sustainable Effectiveness (Jossey-Bass, 2011), co-written with Christopher G. Worley.

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