Don’t we all remember our childhood when our parents gave us little rewards (read chocolates for me) for small accomplishments? Little did we think that these supposedly small rewards are conditioning the human mind towards what is commonly referred to as performance-based rewards.
Today, performance-based rewards are used worldwide to incentivize the workforce to deliver performance or focus on some priority behaviors. Depending on what outcomes the organizations desire, they use different levers to structure this variable component of employee’s total compensation. These levers are also used to distinguish various levels of employee performance and inherently assume that high performers get paid more than their counterparts with lesser levels of performance, thereby bringing the “Pay for Performance” philosophy to life.
A recent research study conducted by the CEB through their Human Resource Leadership Council highlights that employees who effectively demonstrate their organizations’ priority behaviors achieve results-based performance scores that are 40% higher and are 13% more sustainable than their peers who do not effectively demonstrate these priority behaviors. Therefore, while performance rewards can provide an immediate impetus to the results or priority behaviors, in the short run, sometimes they may struggle to achieve their objective over a long period of time.
Therefore to have performance based reward programs that work, the following imperatives need to be carefully considered:
- Imperative 1: Make the priority behaviors more actionable and results crisply and clearly defined. Organizations shouldn’t forget that some behaviors that they expect from employees may be mutually exclusive of one another. For example you cannot expect innovation and process adherence at the same time. You can rarely be both innovating and adhering to the processes. Therefore clearly defining what is important, when and for whom will make it sustainable.
- Imperative 2: Clearly articulate the connection between the priority behaviors and pay-out of the performance rewards. It is important for employees to see clear linkages between behaviors and various components of compensation. They need to clearly understand what impacts their merit increases (fixed salary increases) and how their variable compensation (performance incentives) gets paid out.
- Imperative 3: Manage Incentivized behaviors as a portfolio. Careful considerations during the design stage can reveal how some of the incentivized behaviors could impact some of the other desirable behaviors adversely. Therefore, plans which incentivize one behavior at the expense of other should be strongly discouraged.
- Imperative 4: Tailoring performance incentives to key employee segments. In this day and age of differentiating and customizing, no one size fits all. The key is to differentiate and make the performance incentives relevant for various groups. Therefore, as you design your incentive program, segment your employees to clearly identify the priority behaviors expected of them and structure your plan accordingly.
- Imperative 5: Use Incentives to permeate behaviors in culture and processes. To ensure your incentive plans are sustainable, use them to embed priority behaviors in the culture and processes of the organizations. This enables organizations to make a fundamental cultural change thereby making the priority behavior the new norm. Once this has permeated in to the culture, the organizations can comfortably use the performance incentives to focus on other priority behaviors.
Therefore all said, performance incentives are here to stay. Careful consideration and diligence at the time of designing can ensure these plans are fair, exciting and truly differentiating for your people both in the short and the long-term.
This article is a part of the People Matters- Oracle Let's Talk Talent series. Click here to visit the Let's talk talent page to read more such articles.