Enabling agility through the alignment of rewards policies
In today’s world, the benefits of agility to any organization are clear. A study done by Forbes states that 92% of executives believe that agility is critical to business success. When we think about agility and behaviors in an organization, what we usually relate to agility is collaboration and teamwork, the speed of reaction and adaptability and of course empowerment and accountability.
The most tangible and immediate drivers for employees is rewards and therefore it is important that the policies drive these behaviors, as per Brian de Souza, Senior Consultant, Talent, Rewards and Performance, Aon Singapore.
A company’s rewards practices need to enable these behaviors in its employees. If you think about traditional structures, often at times, they are designed more to provide the structural support focuses on cost control or managing the internal pay equity but not as much to enable quick reaction to market salary movements or quick recognition for competence.
So what are some rewards practices that organizations are adopting in the leap forward in agility? These are some of the most important questions-
Should we pay bonus on individual performance and should we continue force ranking employees onto a performance curve?
Bonuses are currently commonly based on individual performance ratings, there is still a huge emphasis on individual KPIs. Secondly, forced rankings are not strictly adhered to but employees are still fitted into a performance curve.
This creates a lot of internal competition as employees focus more on competing against their fellow employees rather than shifting their focus and thinking about how they can compete against other organizations.
“Individual KPIs and individual bonuses create a silo mentality within the employees, making them think only in their own space, about their own responsibilities.”
We limit them from thinking beyond their individual responsibilities. Like how do my responsibilities affect other employees, other departments and the organization as a whole?
Agile organizations are increasing the emphasis on team-based bonuses and the removal of forced ranking, putting greater emphasis on team and organization KPIs.
The reasons for this shift are clear. An effective team creates greater synergy. Removal of forced ranking removes the sense of internal competition. Team-based KPIs creates a collaborative environment, encouraging employees to think beyond their own job scope, about how can the organization get better from the decisions I make.
Is the Annual Performance Process best suited for the Recognition of Performance?
The key words of good feedback are often Timely Recognition and Continuous Feedback. In most organizations, employees get annual bonuses, annual increments, and annual performance review. All major decisions regarding employees follow an annual and it creates a delayed reaction. A long time has passed after a positive or negative event before HR can recognize the behavior or correct the behavior.
“However when there is an immediate recognition of certain positive behaviors, it gives a very strong reinforcement of achieving the outcome, thus helping that person to continue that behavior.”
If you think about the performance cycle, often at times, you only address performance at the end of the year. Most of the messages get diluted because it’s been a while since an employee has displayed the good/bad behavior and there will be ups and downs in performance. So the messages get averaged out. Employing a continuous feedback model creates a larger impact as it provides faster reinforcement and in addition, correcting a bad action earlier.
Compensation policies should be aligned as well by moving away from annual cycles for Salary Increment and Bonuses, and allowing the organization to provide faster rewards for achievement and increased contribution when displayed.
Spot bonuses are used to recognize contributions when they happen. Compensation works best as a motivator when it comes as soon as possible after the desired outcome is achieved. Annual bonuses take too much time to provide recognition and reinforcement of the positive behavior could be diluted by the variability of performance across a year.
Non-Cyclical Salary Increments can be provided when employees increase their contribution to the organization or when there is significant market movement. This allows the increment process to be quick to react and provide timely recognition. The annual increment cycle slows down the process that the organization can provide the employee with an increment.
In our current environment, employee tenure is much lower than previous generations, employees are often not willing to wait for the salary increment process to catch up to the market or recognize their increased contributions.
The direct link for salary increments to contribution encourages employees to continuously develop and grow as the reward is reactive and its frequency is dependent on the employee’s ability to increase their contribution to the organization.
The correlation between agility and decreasing levels of hierarchy
How many grades should you have in your organization? The answer is it depends. If you think about traditional structures –taller structures give the sense of hierarchy and it also creates a focus on upwards movement for career progression. It does provide a structured career path but the issue with taller structures is that it creates a focus on promotion when it should be about development and contribution.
“An agile organization wants to empower employees, to let them feel that they have made an impactful contribution to the organization and to give them the accountability to shape their own careers within the organization.”
Basically to understand that if I want progression, this is what it takes and this is what I need to do.
Brian says that a lot of organizations are moving to decrease levels of hierarchy and with that, you also get an increase in employee mobility. Flatter structures increase the ability to have open communication and open feedback with the lessening of the sense of hierarchy. You also see the employees being braver and contributing more to the organization, suggesting things that will bring an improvement, taking an initiative to do more than the current scope to increase their contribution.
“With a flatter structure, employees understand that the focus is not on promotions. If you want to move up in the organization, you have to show me that you are contributing at a higher level, that you have increased your competency and capacity to do more.”
You are taking accountability for your own career. It’s not about asking your boss “I have been here for 5 years, where am I going?” but asking yourself that question.
If you think about employee mobility, most organizations focus on having well-rounded employees and see the value. Flatter structures remove that administrative barrier that narrow bands often pose, in that sense you see it allows employees to move from one function to another without that issue that ‘Oh! He doesn’t fit into that role or he must drop one level.’ That’s always the administrative difficulty in employee mobility.
Also, in creating your future leaders, it’s a good idea to have people who understand the business as a whole and how all the other departments are run. This is because they start making better decisions for the organization as a whole.
(The article has been collated from a session by Brian de Souza, Senior Consultant, Talent, Rewards and Performance, Aon Singapore.)