As the competition for talent hots up, companies must get the link between performance and reward spot on, says Stuart Hearn, Commercial Director at Vaado Software.

Rewarding employees correctly based on how they perform is a tricky area for companies, but if they get it wrong then productivity and motivation levels can nose-dive. Nothing is more demoralising for people than feeling that their efforts at work are not being adequately recognised, while employers become frustrated if they are not getting the best return possible from their incentive schemes.

Yet often companies only have themselves to blame. The harsh reality is too few organisations effectively link performance and reward. Without this firm connection a business can struggle to attract or retain the best talent and will lose out as confidence returns to the job market over the next few months.

Mismatch
The Recruitment and Employment Confederation’s April Jobs Outlook revealed that 23% of employers want to grow their permanent workforce in the next year. More importantly, they will cast their net wider to catch the talent they need, and the organisations with a reputation for recognising and rewarding people correctly will reel in and retain the best.

The Chartered Institute of Personnel and Development’s (CIPD) 2010 ‘Employee Attitudes to Pay’ survey emphasises why this is so crucial. It states that 60% of staff in the private sector want and expect to be paid according to how well they perform, yet only 24% said this was actually happening.

Ultimately this is all about getting on top of performance management.

Keeping it relevant
Any performance management strategy must not only be affordable, but it must also be fair, which means setting employees appropriate and achievable objectives. Too many companies set poorly-targeted incentives because the system they have in place for assessing and measuring how an individual or a team is performing is shockingly inadequate.

 People will not respond positively if their rewards are tied into targets which ultimately they cannot reach on their own. For instance, a team may be promised a group bonus if it raises revenue by a certain percentage, but individual members of that team may not have the power or influence over the management decisions which will determine whether that target is met.

At the same time it must be obvious to the company whether someone has met their objectives and earned their reward. An effective performance management system will enable them to do this. Too many employers still rely on paper-based systems with appraisal reports dusted off once or twice a year when managers and employees come together to assess whether previously-agreed objectives were met and to discuss new ones. And the cycle repeats itself.

Out of the Dark Ages
Employers who continue to use paper systems risk being perceived as outdated and irrelevant by Generation Y – those people born between 1980 and 2000. These employees are highly technology-savvy and expect to be communicated with at work through their media of choice. Ambitious young people want to view their performance and progress with the click of a button, in the same way they access Facebook or search via Google.

In the past, performance management technology has rightly been criticised for being expensive, complicated, time-consuming and difficult to keep up-to-date. Too often Human Resources Directors (HRDs) have been blinded by science by suppliers and sold a complex beast of a system which promises advanced features such as 360-degree employee appraisals but ultimately fails to deliver or impress.

Yet employers do not have to choose a complicated solution.  HRDs simply need a system which gives managers easy access to staff performance data and enables every employee to retrieve, review and update their personal progress in his or her own time. Of course there will always be an element of ‘chasing up’ required by the HR team but an online system shows clearly who is helping the company achieve its corporate goals and, more importantly, who isn’t.

We helped a large international publisher move from a paper- to a web-based system and they now have a much better understanding of the individual training and development needs of their 800-plus employees. The old paper system made it much harder to adapt personal objectives as the needs of the business shifted during the year. The beauty of modern online web-based systems is that all parties can make agreed alterations as they go along.

We also worked with a major music company to link performance and reward across their global offices and 2,500 staff. The time had come to ditch the paper and choose a simple online web-based system which would allow individual performance ratings to be fed directly into the company’s bonus structure.

Squandering opportunities
Any business’s greatest asset is undoubtedly its people, and accordingly, accurate and comprehensive data on these employees has to be considered to be equally important. A web-based performance management system enables HR teams to capture some powerful intelligence and strengthen the perception of the HR department within the business. Furthermore, companies can track, and issue prompt responses to, employee performance. Reports can be generated to highlight, for instance, detailed percentages of people and teams within the organisation who are not meeting specific objectives or who are actually performing to the required standard. By analysing and acting on this information, companies can accurately reward people based on their achievements.

It is crucial that organisations have an efficient strategy to link performance with reward because both have an impact on the bottom line. Yet employers need a modern system for tracking the link between the two or they risk missing out on talented people, and will struggle to meet their critical corporate targets.

Stuart Hearn is Commercial Director at Vaado Software