An organisation will often understand what its return on investment requirements are when undertaking expenditure on capital items, marketing or technology, however have you ever been asked by your CEO, “Are we getting what we pay for in terms of our people costs?”
Perhaps another way to look at this question is to reflect upon whether your employees‟ pay, bonus and incentives reflect the performance of the individuals and the organisation?
Today‟s HR professional will be aware of the significant growth within the private sector of performance related pay systems over the last few decades. I‟m sure we have all been part of the reconfiguration of performance management systems to ensure that company-wide goals cascade down through the organisation in order to ensure that everyone has a consistent common set of goals.
Often, following the introduction of a new approach to performance management, organisations also review reward policies, devising new incentive or bonus schemes, and / or directly linking annual pay awards. Organisations want to ensure that their approach to reward reflects employee performance, retains talent and encourages appropriate business behaviours.
Managing the curve
In many organisations the HR function and the business will attempt to align individual performance to a “bell curve” of anticipated or actual required performance ratings. This approach is often positioned as being necessary to reward the highest individual performers appropriately, or to justify how the actual business and individual employee performance compares to other high performing organisations (or both!).
However, when attempting to manage performance distribution across the organisation the HR function is often faced with some pretty difficult questions and issues, such as, “How can we have so many high performance ratings when we aren’t achieving our organisational performance goals? Why are we paying our best performers pretty much the same as our worst performers? Are we rewarding the right people?”
What is actually happening in many organisations is that they believe they are paying for one thing (performance) when in actual fact they are paying for something else.
For example, reward for promotion often exceeds annual pay increases for performance within any given level, no matter how much the employee has contributed. Therefore, employees have a much greater incentive to try to get promoted than to stay put and do an outstanding job. This issue can be exacerbated by the use of broad bands (grades) and salary ranges; all too often, organisations implement a new approach to pay without considering how to communicate to their employees the principles of progression within a salary range.
If we take another example, you may work in an organisation which is results-oriented, and management is only interested in financial measures such as profit or revenue. Financial rewards are probably used as the major motivator for staff, as we have seen within the financial services sector. However, this approach may not be the right one for employees who are not motivated by financial reward and are perhaps already highly committed to the goals of the organisation. In this situation, non-monetary rewards may be the way to go.
For smaller organisations where promotion opportunities are limited, the opportunities for employees to reap financial rewards for moving up and for performing well are also limited. Linking performance and reward effectively relies on a good understanding of your organisational context, and the mix of employee motivating factors.
The key questions to ask yourself
The first step is to determine whether you are getting good value from your current reward spend. You will need to ask:
1. What do you want your performance and reward systems to measure and support?
2. Are they linked to the overarching business strategy?
3. Is the design simple, transparent and flexible?
4. Are you measuring and actually differentiating individual reward based on performance?
5. Do employees understand the link between performance and reward? “I do this, in this way, therefore I get that” is often missed as a design principle.
They might sound like simple and obvious questions, but if the answer to any of these is “No” then we can help. We bring a wealth of experience and insight from a wide range of sectors. We can help you to align your organisation’s performance and reward strategy with your business strategy and, in turn, ensure that organisational goals translate to individual performance plans. This is the starting point from which to link performance with different types of reward.
Knowing what great performance looks like and how to measure it is the first step. We will design a reward model to support and reinforce great individual performance that works in your organisation, with your employees.
When your CEO asks the question, “Are we getting what we pay for in relation to our people costs?”, we will help you to answer with a resounding “Yes”
Is performance and reward on your HR agenda? With over a decade experience in HR solutions, PlusHR works with organisations of all sizes and sectors to design and implement effective performance and reward schemes. Get in touch now by calling +44 (0)20 3751 4422 or email firstname.lastname@example.org. Also check out our blog on 10 Steps to Managing a Successful Organisation Restructure here.