As Andrew Brock writes, by having the right culture and context, rewarding desired outcomes can be a very powerful motivator, both from a financial, and importantly, a recognition perspective.
Motivating employees to perform by paying them to do so is not a new concept, but it is a powerful one that is dramatically under-leveraged. Pay is certainly not the only thing that drives performance, and cases have shown that simply paying for performance does not increase performance.
It can sometimes even decrease performance for example, on achieving ill-defined ‘creative’ type outcomes. However, by having the right culture and context, rewarding desired outcomes can be a very powerful motivator, both from a financial, and importantly, a recognition perspective.
So, it is not all about pay, but pay is a significant proportion of what employees want. In fact, in a recent study, 25% of employees said ‘pay’ was the most important thing to them and this was their top reason for joining an organisation. (Wiley; Kowske 2011). So in a quest to drive organisational performance, pay is clearly a very large lever.
So how well are we using that lever?
Every year, Kenexa’s WorkTrends survey asks thousands of workers in 28 countries (including Australia) for their insights on workplace issues including pay and performance. In Australia, only 49% of employees agreed that their pay was directly related to their performance. Although this was significantly better than employees outside of Australia, where only 39% agreed, we need to realise that every second employee across the country is sitting at work with no financial incentive to work harder or smarter. As leaders battle rising macroeconomic headwinds to increase business performance, this signifies a massive opportunity.
As business and HR leaders, how can we use the pay lever to increase performance?
Firstly, don’t be put off by thinking you can’t afford to pay more. When applied correctly, pay for performance programs will actually increase margins and not reduce them, by increasing the productivity and results of the existing workforce.
If you are just starting down the road of pay for performance, concentrate on your most important job families first. Increasing performance in jobs where the difference between a good and an average performer is exponential will give you the biggest bang for your buck.
Have a clear long-term goal(s). For example, “become number one in customer satisfaction by 2018.” A goal like this can then be broken down into sub-components and timeframes. All goals must be SMART goals: Simple, Measureable, Achievable, Realistic, Time-bound.
Make sure every employee not only knows the goal(s), but understands what achieving the goal looks like and how they can contribute. No matter where they are in the organisation, a line must be drawn between their work and the outcomes of the goal(s). For example, as an Accounts Payable clerk I can make an impact by ensuring that suppliers are paid correctly and on time. Vital customer services will not be adversely impacted, and by doing my job efficiently, or e-resources can be spent directly on the customer experience.
Incentivise every employee for their contribution towards meeting the goal. To carry on the example of the Accounts Payable clerk, their bonus should be set on timely supplier payments and efficiency (with very clear metrics). Aligning everyone’s efforts is important, so often originations will apply to overall or business unit targets and then variable compensation is based off personal performance as well as overall performance. Regardless, employees should know specifically what they need to do to maximise their compensation.
Lastly, remember that paying for performance is an extremely powerful tool, but by no means the only tool in the box. I find it useful to think of a robust pay for performance strategy as a powerful potential ‘engager’. Having one in place impacts many of the key drivers of employee engagement.
It ensures that employees know the vision and goals of the organisation and how they can contribute to them. Performance review conversations become more structured and less subjective, supporting good open and honest communication. Rewarding top performers and celebrating success is motivational for everyone. Lastly, other factors such as recognition, self-fulfilment and growth and development must also be in place as the foundation for engaged employees to even want to stay with your organisation and buy into your goals in the first place.
About the author
Andrew Brock is Client Services Director, Kenexa Australia. Phone (03) 9602 3899 or email email@example.com