Rewards For the Right Reasons

If you have an employee working for you, why would you give them an increase to their base pay?  I'm presuming though, that there's a review program (annual?) in effect so that employees don't have to come to you, hat in hand to ask for a raise. 

When reflecting on their merit review / pay increase programs, here are the reasons I typically hear for granting individual rewards.

• Good job performance: In recognition of delivering good or better job performance during the review period.

• Tenure: Employees who have been around for a long time deserve "something" to recognize and reward their continuing loyalty.

• Peanut Butter Spread: Popular in low merit spend years (lot of those lately), the thinking is that making distinctions is not "worth the effort," so "Let's give everyone the same raise."

• Everybody wins: Part of the popularity effort by many managers is the belief that all employees should get something.   They try to avoid being judge and jury about the linkage between performance and rewards.

• They need the money:  The soft-hearted approach, when managers make emotional vs. business decisions.  An employee's personal circumstances become a pay decision consideration.  And if one doesn't need the money?  Chances are some of their portion might be shifted elsewhere.

• I don't want them to quit:  Another aspect of the manager popularity effort and a cousin of the "Everybody wins" tactic, is where a manager ignores or downplays job performance and reward distinctions to ensure an employee doesn't get angry and then decide to leave the organization.  Because a decision to look elsewhere might negatively impact the manager.  Self interest conquers all.

You'll notice that I put "good job performance" at the top of my list.  Is it at the top of yours?  Sad to say I often see that requirement placed further down the list in many organizations.  While everyone would agree that performance is important, we're talking about money here, about discriminating among employees.  So the counterargument from pay-for-performance critics is that there are other things to consider.

Basic Rule of Thumb

But what if those reward dollars were coming out of your own pocket?  What if you acted as it you owned the business, and that the merit spend monies came from you, not from off a money tree or from some other constantly renewable source?  Then the decision becomes, either give monies to "deserving" employees, or keep it for yourself.

If that was the case, might the decision making process become more objective, might focus more attention on the ROI gained for the reward monies being spent, and might you expect managers to do a better job at actually managing their employees?

A basic rule of thumb in human factors management is that job performance that has been recognized and rewarded is going to be repeated.  Conversely, employees will find little encouragement to continue unsatisfactory behaviors and performance if they realize that pay increases are not automatic, and that an accounting of some sort will actually take place.

Sit on your butt and get nothing.

Critics and Naysayers

With that vein of thinking I would suggest that pay increases granted in advance of performance is also a bad idea.  I've heard some pundits, in their criticism the performance appraisal process say, "Let's ignore the past (performance) and instead reward employees for future effort."  Doesn't that sound like a bribe?  And if the employee doesn't perform well enough to warrant the monies already given, would there be a pay claw back later on?  I don't think so.

Some other pundits (p4p criticism #2) suggest that dangling pay increases in front of an employee - as a form of motivation - is a wasted effort.  Their belief is that employees will perform well anyway, as some form of internal self-worth will propel them to work hard.

• When high achievers and Joe Average receive the same / similar increase, whose performance do you think is encouraged and will be repeated?

• How many of your employees "perform well?  100%?  Probably not.  So already this theory ignores a segment of your population.

• Well-intentioned and self-motivated employees will eventually run out of steam (think of a battery) unless recharged by recognition and reward.

• Your organizations risks encouraging a "Why bother?" mentality, which when coupled with a higher percentage of Joe Average in your workforce, is a recipe for serious difficulties.

So have a care that your reward monies go to the right employees, and for the right reasons.  Less than that is wasted money.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a clowder of cats.

Creative Commons image,"Boba Fett Reward," by pasukaru76

Comments

[Jay Schuster]

I wonder if 'paying for performance' in any way is dead. Clearly it is gone in the public sector and generally replaced by programs focused on issues about the workplace that do not include linking the pay process to a viable solution to performance management. One of my friends who is a college professor is of the mind that 'Any form or recognizing performance differences with pay would be better than the direction we are now following'.

Food for thought I say. Perhaps rewarding performance differences with pay is gone forever. Anybody have a view on this????

[Jacque Vilet]

Some companies are just adjusting salaries based on market movement then using a profit-sharing plan on top of that. (What goes around comes around. . . .).

[Jay]

How true that is. I have a feeling that much of the 'attacks' on paying for performance is rooted in a belief that 'nobody has the right to judge my value'. I don't think that 'profit sharing' is paying for results at the individual level. Times sometimes change for the worst as we all realize now I think.

[Jacque Vilet]

I think there are several things going on:
1) more people working in groups on an almost constant basis --- whether one group or multiple ones throughout the year
2) the "new" focus on company performance and individuals encouraged to "do their part".

We'll see.

[Jay Schuster]

The 'working in groups' led to the implementation of many 'team-based variable pay plans' not long ago. In large part they worked with social pressure focused on getting individuals to contribute to group and overall organization goals. These declined however for what reason I don't know. They worked!!! The focus was on 'shared goals' and a lot of education and communication about why individuals should help achieve broader organizational and group goals.

"Doing your part" and "Enlightened self interest" are partners in the last comment you made. I am seeing a lot of 'me first' and 'you last' behavior which is troubling to be honest.