Canadian HR Reporter

CANADIAN HR REPORTER July 13, 2015 INSIGHT 19 Exposing the pay for performance myth Annual pay for performance systems are antiquated, wasteful and no longer serve a constructive role in rewarding or mo- tivating performance. In other words, they're bad for fostering engagement. With wage or merit increases averaging in the two to three per cent range (with little diff eren- tiation) for the last 10 years, wage increases have become a useful hedge against infl ation that fur- ther drives a sense of entitlement among employees. Emerging technologies will make it possible to reconnect the link between pay and per- formance — but it will require a massive paradigm shift to more eff ectively incent performance. In the current traditional and largely static work environment, HR practitioners are well-versed in long-held compensation prac- tices requiring everyone to under- take large amounts of eff ort just so leaders can tick the box and fi nal- ize the merit increases. Having completed a great num- ber of merit compensation cycles over the years, I confess that get- ting the process over with was always a huge relief. Endeavour- ing to ensure equity and fairness based on an underlying process of subjectivity and discretion always seemed fl awed. If anything. the process itself exacerbated greater issues of equity and fairness. Rating and calibration were a primary cause for the variance. While it was easy to agree on consistent defi nitions for perfor- mance ratings, the application proved far more elusive. Some leaders had a reputation for being soft markers while others prided themselves for setting high stan- dards — and a host of others simply played it safe. e result always precipitated a lot of debate and frayed tempers that would result in the acceptance of the im- perfect process. To fully understand this fl awed process and how to change it, the process itself must be examined a little more closely. Typically, merit percentage increases are allocated based on overall aff ordability and the market requirements needed to attract and retain talent — even though they do little to motivate. We must bear in mind workers commit a major part of their life energies to the company. ey endure diffi cult commutes, un- reasonable work demands and managers and co-workers who do not always relate to their point of view, which can all be forgiven as long as there is a reasonable accommodation for these eff orts and a sense of appreciation by the company. In reality, however, what hap- pens is a complete disconnect between their work effort and the actual pay adjustment. Upon learning of the "merit" increase, many workers end up ever more resolved to look for another job at the fi rst opportunity. So, how does a well-meaning system end up doing so much harm? Everyone agrees managers have their own job responsibilities in addition to their people man- agement roles. Even exceptional, well-meaning front-line manag- ers cannot possibly account for a complete objective assessment of each of their direct reports. In many instances, they are not even trained on how to do so. ose who do endeavour to keep track do so through their own subjec- tive lens — which may or may not always line up with the employee's perceived sense of value. en, of course, we have the forced performance distribution. Although very few organizations admit to using such distribution curves, in the end — whether ex- plicit or implicit — they always prevail. Any manager with more than her share of high performers will always be told to scale back to comply with the corporate budget and performance guidelines. e last key factor is timing. Typically, merit budgets for the following year are set in the fall of the current year. Performance re- views and the compensation cycle for the preceding year are typically held in Q1 of the following year. is is a very long time period for any performance recognition or reward to be eff ective. at, in part, is the lunacy of the pay for performance approach — and it doesn't end there. e fi nal point of disrespect conspires to have the managers meeting with their workers to advise them of their increase, although in reality it turns into more of a "sell" job than anything else. Fixing the model Despite all these issues, this pro- cess is repeated year after year. It is far from being a pay for perfor- mance model. How then do we transition from such an established and accepted process to a healthier method that actually promotes great performance and employee engagement? e answer is not as complex as one may imagine. It involves courage and leadership to do something diff erent, away from the pack mentality. Historically, we've treated the merit increase exercise as an ex- pense and a payout. e underly- ing key, however, will be to shift this paradigm from an expense to an investment. is is done by bringing the merit monies forward and putting them in a pooled account so employees can access such based on their level of engagement and performance. e actual earnings would be re- fl ected immediately and the pay- outs themselves could be done quarterly so there is direct linkage between the eff ort generated and compensation. One way of doing this is by reserving a portion of the merit increase — say 0.5 per cent — and bringing it forward to create this investment pool reserved for performance. In actual fact, what ends up happening is a hybrid ap- proach between the investment model and traditional approach. No doubt, some will argue that bringing monies forward be- comes cost-prohibitive as com- pared to the traditional model. All things being equal, I would agree. However, when coupling the new approach with innova- tive social platforms that allow for true capture of quantifi ed perfor- mance metrics , the playing fi eld becomes altered forever. How good will employees feel know- ing where they stand while fully understanding the connection between their performance and their pay increase? It means less reliance on management's discre- tion which can only serve to im- prove engagement. is is a bold new approach and while many companies may at fi rst be slow to adopt, once the door opens, few will turn back. Innovative companies will bring to bear new methods that will make pay for performance not only meaningful but fun and en- gaging. Such technologies will, in large part, enable this transforma- tion from an annual merit window into a more just-in-time dynamic performance model. e elegance of such an approach means it doesn't have to be an all or none, but organizations can evolve over time, allowing for workers to buy in along the way. Traditional merit pay increase cycles evaluate performance through the rear-view mirror over a long span of time. Transi- tioning into a more "just in time" pay model along a quarterly pay- out continuum, based on more quantifiable and transparent metrics, reinforces the connec- tion between the worker eff ort and the payout. is investment approach will evolve existing after the fact "reward" type increases into a more forward "incentive"- based model that will in turn promote better performance and engagement behaviours. John Cardella is an industry infl u- encer, thought leader and co-founder and CEO of Eff ort Generation, an en- gagement building software services platform. For more information see www.5paq.com. You can follow him on Twitter @cardella5paq. Liability for discrimination by recruiter Question: Can an employer be held re- sponsible for the actions of a recruit- ment agency that discriminates against job candidates without the employer's knowledge? Answer: Every jurisdiction in Canada has human rights legisla- tion that prohibits employment- related discrimination on a num- ber of protected grounds, such as sex, race, age, physical disabil- ity, mental disability and religion. ese statutory protections apply not only to an employer's existing employees, but also to job appli- cants. If a candidate applies for a position and doesn't get it, the employer must ensure its decision was not connected to a protected ground, unless the refusal to hire was based on a bona fi de occupa- tional requirement. Human rights tribunals have statutory authority to grant a va- riety of remedies if an employer is found to have failed or refused to hire a candidate on a protected ground, which can include lost wages and expenses, damages for injury to dignity, feelings or self- respect, and even an order that the employer provide the individ- ual with the job she was improp- erly denied. Where an employment-related human rights claim is fi led, the respondents will often include the employer, as well as the man- agement representatives or other employees who are alleged to have engaged in the discrimina- tory acts. Under the principles of the vicarious liability, an employer will be held responsible for the discriminatory actions of its em- ployees, if those actions occurred in the course of employment. An example is the Ontario de- cision in Halliday v. Van Toen In- novations Incorporated. e com- plainant was a recovering drug ad- dict who had been clean and sober for nearly a year when he began working for the employer. The employment relationship deterio- rated when his supervisor found out about his past and began to refer to him as a "crackhead," both directly and in emails to other employees. Following these and a number of other incidents, the employee resigned and fi led a hu- man rights complaint. The Human Rights Tribunal of Ontario found the supervisor had discriminated against the employee on the basis of a dis- ability, and that the employer was also vicariously liable for the dis- crimination. e employer and supervisor were held jointly and severally liable to pay the com- plainant $25,000 for the breach of his inherent right to be free of discrimination with respect to employment and to be free from reprisal, and for injury to his dig- nity, feelings and self-respect. Independent contractors e analysis becomes more com- plicated where the discrimina- tory acts were not the acts of an employee, but of an indepen- dent contractor engaged by the employer. A good example is the situation where an employer retains an in- dependent recruitment or search fi rm, and that fi rm is later alleged to have engaged in discrimination in the search process. In these circumstances, the employer will be held respon- sible if the evidence shows the search fi rm acted in a discrimina- tory manner on the employer's instructions. But even if the employer was unaware of the search fi rm's dis- criminatory acts, the employer may still be liable if the fi rm was acting as the employer's agent when it engaged in the unlawful discrimination. For example, if an employer hires a search fi rm to review and screen job applications and pro- vide a short list of candidates, the employer may be held liable if the search fi rm screens out individu- als on the basis of their race or gender. To avoid unexpected liability in these circumstances, employers should ensure the contracts with recruitment or search agencies clearly outline the rights and re- sponsibilities of each party. For example, the contract should list the specifi c services the search fi rm is being retained to provide, and should include language requiring the search fi rm to provide such services in compliance with applicable laws, including but not limited to rel- evant human rights legislation. e contract should also re- quire the search fi rm to indemni- fy the employer if the employer is ordered to pay damages, expenses or other amounts to a third party because of a breach by the search fi rm of its legal obligations. For more information see: • Halliday v. Van Toen Innovations Incorporated, 2013 CarswellOnt 11591 (Ont. Human Rights Trib.). Colin G.M. Gibson is a partner with Harris and Company in Vancouver. He can be reached at (604) 891-2212 or cgibson@harrisco.com. Colin Gibson ToUghest HR QUestion Exposing the pay for performance myth Annual pay for performance systems are antiquated, wasteful and no longer serve a constructive role in rewarding or mo- tivating performance. In other words, they're bad for fostering engagement. John Cardella GUest CoMMentarY Innovative companies will bring to bear new methods that will make pay for performance not only meaningful but fun and engaging.

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