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Pay for what you get: Compensation for performance

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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

Tips for a successful performance reward scheme

  • Be absolutely clear on the corporate goal you’re trying to achieve by the implementation of this scheme
  • Be clear about the measurement techniques you use and how that proposition is then structured to achieve those goals
  • Indicate and market the programme at the outset and on an ongoing basis
  • “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.

    “The people that generally know whether someone has performed well tend to be the people they’re working with.”

    John Sylvester, P&MM

    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.

    One Response

    1. Punished by Rewards
      In Alfie Kohn’s “Punished by Rewards”, he offers the following advice to managers: “Pay people generously and equitably. Do your best to make sure they don’t feel exploited. Then do everything in your power to help them put money out of their minds.”

      It’s a pity that more effort is put into developing ever more sophisticated pay systems than into helping managers turn Kohn’s advice into reality.

      Also, while we’re talking about pay, why is it that the HR profession persists in referring to pay and benefits as “compensation”? You compensate people for breaking a leg, not for turning up to work in the types of organization that the HR community claims to aspire to.

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