As someone who aims to be an effective organisational leader, do your ever wonder why you have a performance related pay/incentive remuneration scheme? Certainly, if you are one of the nearly 15 million people who have watched "The Surprising Truth About What Motivates Us" that is a question you ought to have been asking yourself. Or is it something you haven’t dared asked yourself, simply because performance related pay is virtually ubiquitous? When nearly every organisation – regardless of type or nature of business – has such a scheme, you would be bucking the trend and possibly damaging your employer brand if you didn’t.
If that is the case there are still a number of criteria that you should be looking at to ensure that you have performance measures and remuneration and reward structures that optimise organisational performance. When it comes to effective performance measures and rewards you naturally need to ask yourself 3 questions.
- Do I have the right performance measures?
- Are the rewards for achieving those performance measures appropriate?
- Does the combination of performance measures and reward ensure behaviours that consistently produce the best overall results for the organisation?
So, how good are your answers? Can you be sure that you are optimising your people, their capabilities and their collective effectiveness? Chances are that you cannot do so with any degree of confidence.
Earlier in my career I worked for a financial services company that paid sales people for generating new business. Unfortunately, the definitions of new business and the boundaries between the different departments were not sufficiently clearly delineated. Thus money transferred from deposit accounts to mutual funds and vice versa was treated as new business. Consequently sales commissions were paid when there was in fact no benefit to the company and money was regularly ‘churned.’ The sale people did well out of the arrangement, but the company didn’t! This was a factor in the company ultimately going bankrupt.
Now, you might think this is an extreme example (and hopefully it is) but you need to be sure your organisation is not also prey to manipulation or abuse of your performance versus reward systems. As this article on performance management illustrates, ways in which incentives can be manipulated and undermine organisational effectiveness are virtually infinite. This makes finding examples in any organisation, including yours, highly likely. The only way to eliminate the risk is to remove the link between personal performance and reward.
Removing that link may seem like a step too far in today’s workplace and, even contemplating it, organisational suicide but it isn’t. Pervasive incentive remuneration across all walks of life is a recent phenomenon and its inherent flaws makes it inevitable the pendulum will swing back. You can precipitate that by adopting my ‘Every Individual Matters’ Model and its key elements that ensure remuneration and rewards cannot be manipulated and are equitable across the board. The key principles are:
- Performance is not ranked, but is assessed purely against the role requirements.
- Remuneration is linked exclusively to the role and the going market rate for the role.
- Pay increases are awarded only to reflect increases in living costs and are applied universally and uniformly throughout the organisation. Otherwise remuneration only changes as a result of personal development and its effects on the role or career development.
- Additional earnings (effectively recognising the life-investment the employee is making) are possible but are distributed based solely on total organisational results and universally shared on a dividend basis as a fixed percentage of the individual’s ‘human asset value.’
This not only overcomes the inherent weaknesses of conventional performance-related pay schemes, but offers you the strategic alignment and synergy that will ensure your ongoing success.
If you like what you have read contact me today for a free 30 minute conversation about how my ‘Every Individual Matters’ Model can provide the catalyst to help you create an organisational culture of ‘Love at Work’ : one where everyone cares and the business becomes our business, so embracing change and transforming – and sustaining – organisational performance.
Bay is the founder and director of Zealise, and the creator of the ‘Every Individual Matters’ organisational culture model that helps transform organisational performance and bottom-line results. Bay is also the author of several books, including “Lean Organisations Need FAT People” and “The 7 Deadly Toxins of Employee Engagement” and, more recently, The Democracy Delusion: How to Restore True Democracy and Stop Being Duped.