Pay for what you get: Compensation for performance - HR Zone UK - 8/18/08

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Pay for what you get: Compensation for performance

The
Egyptian pyramid builders could have probably showed us a thing or two
about performance management; back in those days the threat of death
was all that was needed to get a stone block dragged up a hill.
However, now there are laws against that kind of practice, Matt Henkes
takes a look at how compensation and reward can be used to manage
performance.

England rugby players have settled
a pay deal this month which abolishes their old flat fee-per-game
system and introduces a performance-based scheme that could see them
earning over £11,000 a game, providing they win. Can this new deal
motivate them to success?

Without even wading into the continuous
debate on executive bonuses, performance-based pay and rewards are
always going to be loved or loathed. The motivational aspect appears,
at first, fairly straight forward. But do these schemes always deliver
what they intend?

Not all businesses or departments or
organisations are able to wear the performance-related pay (PRP)
trousers as easily as others. The success of schemes like these is
usually down to the effectiveness of performance measurement, making
them most applicable in environments where a large number of people are
performing the same or similar tasks - a contact or customer service
centre, for instance.

What to measure

"The
biggest vulnerability in this whole issue is around performance
measurement and how individuals can be effectively measured," says John
Sylvester, director of the integrated marketing specialists P&MM.
"There have been situations where the cost of undertaking that
measurement process in an objective way can actually outweigh the
commercial benefits of putting the scheme in place."

That
danger is really something to look out for; where perhaps some
compromise and innovative approach to measurement is more appropriate.
If you have a customer services environment, for instance, with people
performing at an account manager level, their role isn't necessarily
highly defined, though their output needs to be measured in some
objective way.

You could measure them through customer
retention, though it's not necessarily an indication of performance.
You can set individual objectives, measuring people in an appraisal
mechanism. It's a technique that's widely used, but can be quite
expensive in terms of time and money and is potentially open to
individual managers' views and subjectivity.

So you get into a
position where you might be able to define a whole range of different
measures, a mixture of customer retention, customer satisfaction,
appraisals, objectives reached, financial contribution and so on. But
then putting all those things together and undertaking those measures
might be more costly than the benefit you'll get out of it. And the
more complicated the organisation or department, the more complex the
measurements will have to be.

Top banana

A
cheaper and easier method of identifying high performers is a peer
recognition system, where rewards are given based on colleagues
nominating each other against various desirable behaviours. Not only is
it easier, it also presents the workforce with an extra chance to get
engaged with the process, actively taking part whether they’re
collecting an award or not.

"It's a very useful and
cost-effective mechanism to overcome the complex measurement process,"
says Sylvester. "The people that generally know whether someone has
performed well tend to be the people they're working with."

Businesses
can implant their culture into these schemes; the AA runs a scheme
called Top Banana, including a banana skin award for the best recovery
from a slip-up. Weekly or monthly awards help to demonstrate to the
workforce what good looks like. Nominations are made visible on
websites and where possible awards are presented publicly, explaining
what the nomination is for and why it's been given. "It's a very
effective way of demonstrating what good looks like in a complex
performance environment," adds Sylvester.

Let the people know

But
whether you implement peer nomination or some kind of ground-breaking
measurement scheme, the work will be wasted unless the workforce, and
particularly the line managers whose job it is to implement the scheme,
haven't bought in to the idea. For them to understand why it's a good
idea, the scheme needs to be marketed internally.

Sheila
Sheldon, director of European operations at the rewards specialist
Michael C. Fina, says that the failure to do this handicaps the project
before it's even begun. "If you don't get the management to feel that
it's a good thing to be doing, that feeling filters down through the
workforce and it's never going to work," she says.

There
are those organisations that think they know better, she says. Their
workers may have been asking for a scheme for years, so they don't
think they need to promote it. But a few months in when they have their
review, they decide there's something missing. "'No one’s taking part',
they say. But the bottom line is what have they done to market the
programme and encourage employees and managers to take part?" she
remarks.

Sylvester supports this view entirely. "Giving the
scheme a name and an identity is important," he says. "Our scheme,
'Smart Rs', has a dedicated comms team within the business who send out
emails on a regular basis, promoting the scheme, reminding people when
the deadlines are for nominations. You should do that from the start.
And keep doing it, because that's the main reason why these schemes
tend to die.

"It's not just a technical process of providing
people with financial rewards," he adds. "We stop everything, I get on
the microphone and publicly recognise people, congratulate them and
they get a bottle of wine."

The interesting thing is, he says,
that those bottles of wine tend to sit on people's desks as a trophy
rather than be drunk. Sylvester sees that as a great indication that
they're getting it right, because the value of that bottle as a trophy
is greater than the content."

The balance is not about the
technical delivery of these awards, it's about effectively using the
right techniques to trigger the motivational drivers in people. Drivers
aren't necessarily financial, and sometimes the value of being publicly
recognised can be greater. It's all nice and easy and neat to say, but
to implement it is another thing altogether.

HR Zone, 19-Aug-2008
Categories: Employee Development, Employee Reward


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