Stuck on Pay for Performance?

A manager logs onto his compensation management system (sounds a bit like, ‘Two managers walk into a bar…’, doesn’t it?) and selects his team for review. 

He can see their current salaries, position in range and current performance rating.  He can drill into additional information, such as last salary increase, performance and stock history. There’s even a 9-box grid that maps the performance and development potential of each employee.

Despite the readily available information he isn’t sure how to reward someone who's a strong performer but  already at the top of their grade.  Or a mediocre performer with high potential.  Or an expert who has maxed out on their potential.  Or a solid performer with no apparent potential. 

In other words, he isn’t sure whether to pay for performance, potential or expertise with his meager 3% budget.

The system makes reward recommendations for each employee but he doesn’t agree with several of the recommendations.  For example, he doesn’t see why someone with high potential should get a higher % increase than someone with ready expertise.  Or why a consistently solid performer should be so little appreciated.  Or how he’s supposed to tell his strident top performer that she’s no longer eligible for salary increases.

He sighs and sets to work.  He tones down the high potential increases because a generous salary increase seems inappropriate before they’ve actually done anything to earn it.  He channels some of the extra funds to his two solid performers in a fit of man against the machine.  He gives his top performer a lump sum rather than a salary increase.

When he’s done he reviews the results, frowning:  His solid performers got a 1.5% increase each and ‘rising stars’ got an average of 2%.  His top performer received a lump sum to the tune of 3.5%.  It feels like a lot of work for not much differentiation.

This manager has already shaken the last cash crumbs out of the chip bag: There’s no more money.  What else can he do to motivate his team?
   
Let's imagine he can also drill into a talent profile for each employee where he can review their competencies, personal goals and development interests.  He can assign people to projects, career plans or training programs to help develop their skills.  Or team up an experienced professional with a rising star. 

Not bad but it’s still pretty top down and the manager's sphere of influence is limited to his own projects. 

So let’s take it a step further: Employees can log onto the same system to explore career options, evaluate what it takes to get to the next level and start moving down a chosen path.  As they progress, they maintain their own talent profiles for internal recruiting, strategic projects and succession planning.  They can connect with available mentors online or review and apply for strategic projects or positions. 

The manager is still involved but in a coaching rather than a gate keeping capacity. 

How cool would that be? 

It isn’t even that big of a deal since any modern talent management system can do most of this.  Of course, it requires some work, investment and a completely new mindset.

But other than that, what's stopping you?

Picture courtesy of workday.com.

Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

Comments

[Dan Walter]

Great post Laura. My guess is that the secret that is stopping most people is the fact that they too are being managed to the same type of 3% increase. Their bosses go through the same process and provide the same lack of direction. And it goes up the hill. At the very top the people are likely to be more interested in the business results than the people who drive them. This is often why we find ourselves in the dilemma in the first place.

3% is unlikely to motivate all but the most excitable employees. I wonder if some companies would be better putting the 3% from the entire company into a pool and letting 3% of the top 20% of employees enter a lottery to each win an equal share. Of course, I am joking, but at least the game show aspect would add some interest into the process.

Or we can actually fix the cause.

[E. James (Jim) Brennan]

Compensation is more than simply stuff that jingles. Total Rewards encompass a lot, but (as the song goes) "you gotta know the territory." The best way to encourage your boss to expand their definitions of remuneration and reinforcement is to supply a good example by doing it creatively for your own direct reports.

[Laura Schroeder]

Dan - I think '3% is unlikely to motivate all but the most excitable employees' is going to be my new motto from now on. And great point about the uphill effect.

Jim - Definitely agree about total rewards and not passively waiting for the problem to be solved at the top.

[Ian Sanders]

What's stopping us?

Best guess ... there are plenty of tools that help with the process and provide the tools to get managers unstuck. But very few tools exist that truly educate, guide and help change culture and practices. I haven't seen yet - maybe I've been living under a rock too long - that would. for example, guide managers through the full tool kit of total reward solutions available to them.

[Euromillions lottery tickets]

Thanks for your updates .I really appreciate your work to this site.I hope you can continue this kind of good work in future also..

[Laura Schroeder]

Ian - Thank you for your insightful comment. I was a systems consultant for years I tend to take the view that you can get a system to do just about anything (of course, some systems make this easier than others).

But independent of the tool or technology: Is that really what's missing or is it the willingness to redefine the manager role and put employees in the driver's seat?

My take is that we're getting there but not there yet. I think you brought up a great point about education and guidance - the user experience is definitely key, at least as important as the system capabilities.

[Derek Irvine, Globoforce]

Ah, the new mindset. And therein lies the rub.

I appreciate what you've envisioned here, Laura, and can see numerous benefits. The manager you describe is truly a good one trying to do what is best in a system that simply won't let him -- and in a structure of 3% increases (merely COLA).

Of course, you know what I would answer to your question "What else can he do to motivate his team?"

Frequent, timely, specific and memorable recognition and rewards!

[Laura Schroeder]

Just feeding you a straight line, Derek ;-) Absolutely recognition is a great way to go. I can see great system applications for recognition as well.