Previously Published: Part I - The Right Reward
Part II - www.compensationcafe.com/2019/12/what-is-a-reward-part-ii.html
When you think of the payroll expense that represents your staff of employees, do you consider that amount of money primarily as; a) a cost to the business, or b) as an investment in business success? I've heard both terms used, usually along the lines of a glass being either half full or half empty. It's all about how you look at the same figure. Do you value the employee contribution, or consider it a necessary evil that should be minimized?
This isn’t a trick question. It is a legitimate response to say that you value your employees, while at the same time you want to minimize their cost to the company. It’s all about being effective and efficient with your payroll dollars. You need a balanced program that provides, 1) the right reward, 2) for the right employees, and 3) for the right reasons. Have a care though, because if you miss one, you’ll be wasting money and digging yourself into a big hole.
In this posting, we’re going to take a closer look at the second consideration.
The Right Employees
The foundation question that’s usually asked of Human Resources is whether you (your organization) have a pay-for-performance system (P4P) or culture. That you reward your employees based on their job performance. In my experience the answer will almost always be an adamant “YES,” but have you ever looked behind the curtain? If you’re granting annual merit/pay increases to upward of 95%+ of your population, then you’re kidding yourself. Instead, what you have is a modified giveaway program that says, in effect, “You’re still here at year end, so you deserve something.”
Do you think that’s an effective, motivational message for your employees? How about for your high performers?
If everyone is getting some degree of pay reward, would you have enough money to properly reward that small cadre of high achievers? Because giving your performance stars only 1% or 2% more than Joe Average isn’t going to be enough to retain them. But when pressed with budget constraints (you can’t have more money) most managers would be reluctant to trim back or cut off Joe’s pay rise, so those extra discretionary dollars would be taken from – you guessed it - those employees whom you can least afford to lose.
Joe is the employee that you can afford to lose, yet too often he’s not given a reason to leave.
It's Been Twelve Months
Putting aside corporate messaging (mission statements, compensation strategies and “we pay for performance” posters on the breakroom walls), what do your managers really think when it comes time for the next round of annual performance/pay reviews? Are they prepared to discriminate between employees based on demonstrated performance? Or do they hesitate?
- Managers like to be liked
- You don’t build a team by penalizing someone
- The cost of living has increased; people deserve more money
- If someone gets mad and quits the workload will be harder on me
- Performance assessments are subjective; I could be criticized for my decisions
- My own performance rating can be based on retaining my team
- Best of all, some managers don’t like being the judge and jury over an employee’s career and will pass the buck if possible
Each of these reasons can be compelling under certain circumstances, yet if your managers – as a group – subscribe to one or more of these attitudes, then your P4P program will become little more than a throwaway phrase that is divorced from reality.
The right employees to receive a reward are those who do the most to help the organization succeed. The question becomes, can you make that distinction amongst your employees and act on it? If you can’t/won’t then you do not have a P4P system.
What you have is an entitlement process that delivers payroll dollars using an administrative method that is divorced from individual effort and organization results.
You don’t pay for performance.
Chuck Csizmar CCP is the 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 "Libre Graphics Meeting, 2014"
Oh Chuck, you always have good rationale behind this P4P reality, but it is one I intuitively push back on. As you state, in a world of miniscule pay budgets, there is very little room for differentiation according to performance!
A simultaneous reality is that employees in today's job market have choices. Even those 'non-stars' who are doing the on-going, back-breaking, day-to-day work in our organizations may leave if they are not recognized or do not feel valued. True high-performers/ stars/ career climbers often leave regardless of the merit amounts managers manage to scrape together by reducing or denying their 'good' performers increases.
Could there be an alternative--variable pay based on stated objectives/project completions/incentive plans?
Please let's have a discussion around other compensation methods besides P4P. I think while it's a reasonable concept, particularly in 2019-20, it is difficult to execute effectively without alienating the rest of your needed team.
Posted by: Shawn Miller | 12/04/2019 at 11:44 AM