The defining characteristics of an effective pay for performance culture? New research from Sibson brings us some answers.
Sibson's Real Pay-For-Performance Study, which draws from a combination of in-depth interviews and a "pulse" survey of almost 140 companies, examines and distinguishes the practices of "best results" companies - the top 20% of respondents rated on their success in creating organizational systems which reward high performance.
In asking the "best results" companies to select the factors which contribute most to their effectiveness, the following were noted as the top three.
- Leadership support - 86%
- Processes for differentiating performance - 74%
- Processes for delivering pay to high performers - 68%
So, effective performance pay systems require not only the right tools (performance assessment and pay delivery programs) but also - and perhaps most importantly - the right culture (one where leadership truly supports performance pay). This is not a surprising finding. Most of us out practicing compensation in the real world have learned the hard way that performance-based pay simply does not happen without leadership support. Because paying for performance demands a lot from organization, and a particular lot from its managers. It requires the time, energy and discipline to set and communicate not only performance expectations but also the reward implications of performance. It requires sharing clear and frequent information about actual performance against expecations. And - perhaps most of all - it requires the courage to treat people differently (from a reward standpoint) based on the performance they deliver.
For a host of reasons, managers will resist doing these things. It's when that happens that leadership support for performance pay is put to its true test.
In my experience, almost all leaders embrace the idea of paying for performance and will readily describe their pay systems as ones which reward high performance. This is not leadership support. Talk aside, true leadership support has teeth. True leadership support involves holding people accountable for delivering on performance pay and following through with consequences when they do not.
When managers who game - or ignore - the system experience only positive consequences ("I am able to give everyone a big increase. I am a hero to my team."), leadership support has gone missing. When managers who commit the time and energy, who show the discipline and courage to follow through on performance and reward decisions experience too many negative consequences ("I appear to be the only manager not giving his/her team big increases across the board. My team feels unfairly singled out.") then leadership support is absent.
Bottom-line: When leadership support for performance pay is all talk but no teeth, what odds of success do even the best conceived programs have?
Ann Bares is the Editor of Compensation Café, Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations. She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys reading in her spare time. Follow her on Twitter at @annbares.
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