Comments on performance management
A characteristic of motivated companies is how they use remuneration and reward strategies to align the goals of people with those of the company.
At Celtar we observe that in many organisations staff are rewarded for average performance. High performers are not encouraged to maintain their performance as there is little recognition of – or reward for – an above average contribution to company objectives.
Often staff, including managers, expect to be rewarded with salary increases for being “in the job”, and individuals appear to work under the maxim
“What can the company do for me?”
“What can I do for the company?”
Generally staff and managers would prefer a fair system. The following reward policy makes sense to many;
- A bonus rewards extra value to the company in a current role
- A salary increase rewards extra responsibilities which could be in the current role OR extra responsibilities arising from a promotion. (The increase may be rescinded if responsibilities are inadequately met)
Q. How can reward and benefits policies attract, retain and motivate the best possible workforce to achieve your business objectives?
Ask yourself the following:
- How competitive is your company compared to similar businesses? Do you match the salaries of your competitors?
- What benefits do your employees really value? The value of benefits varies for each individual.
- How can you design a reward and benefit policy that motivates each employee to contribute to your overall success?
- How much will new reward policies cost your company? What can you afford?
- Do you need different reward policies or salaries in order to attract and retain employees for different positions?
- Do your employees understand your rewards policy? Are they clear that there is a relationship between rewards and individual and company performance? How effectively are you communicating the benefits?
- Could you save money by outsourcing certain payroll administration?
- How do you collect and analyse employee data (eg. time worked, pay rates, overtime rates, special benefits, holiday time, sickness and other leaves etc.) for reward and benefits purposes? Could special human resource management software improve cost-effectiveness?
The simpler, the better. Performance pay systems, to be effective, require people to understand how their performance is assessed and how their individual performance affects company performance, for example the relationship between IPIs (individual performance indicators) and departmental KPIs (key performance indicators).
Perhaps reward effort as well as performance? Performing well on a difficult task may be rewarded more than an outstanding performance on a less difficult task. It is important to convey this when setting targets, otherwise people may be tempted to try to set easier targets that they know can be exceeded rather than strive for truly superior performance (and contribution).
Performance pay works best when it provides an unambiguously positive incentive to achieve results. The most successful companies provide a competitive base remuneration with additional performance “carrots”.
In summary, it is important to remember that:
- Money talks. Many companies have moved to performance-based remuneration, where a significant component of a manager’s annual pay is linked to achieving targets agreed at the beginning of the work year. This differs from the old merit pay systems that involved incentives that were too small and performance targets that were too ill-defined to really influence behaviour.
- Keep it simple. If people don’t understand how their performance is assessed, or how their individual performance affects on company performance, a performance pay system won’t work. For performance pay to be effective, it must be accompanied by clear communication and constant feedback on progress.
- Get the balance between risk and reward right. Experience suggests that performance pay is most effective when it is genuinely “at risk”, and not just another entitlement (as it appears to be in the Public Sector).
And as a tester an example of reward policy
“You are eligible to participate in the ABC Co. bonus scheme. This scheme is designed to reward excellent performance in a number of important areas over the course of each financial year. The areas of performance for which bonus applies are Business Development and/or Project Delivery, Staff Development, Personal Development together with the business unit achieving its targets. The financial year runs from January through to December with potential of up to 15% of annual salary paid as bonus. Further details on Individual Performance Indicators will be agreed at your monthly review with your line manager”.
Celtar advises on how to improve the performance of your staff & how to align their activities with company objectives
Celtar management consultants are a group of expert advisers based in Dublin, Ireland