Human Resources Issues for Senior Management
Issue link: https://digital.hrreporter.com/i/605961
30/CANADIAN HR STRATEGY COLUMNS A nnual pay for performance systems are antiquated, wasteful and no longer serve a constructive role in re- warding or motivating performance. In other words, they're bad for fostering engagement. Having completed a great number of merit com- pensation cycles over the years, I confess getting the process over with was always a huge relief. Endeavouring to en- sure equity and fairness based on an underlying process of sub- jectivity and discretion always seemed 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 de nitions for perfor- mance ratings, the application proved far more elusive. Some leaders had a reputation for being soft markers while others set high standards — and others played it safe. Typically, merit percentage increases are allocated based on overall affordability and the market requirements needed to at- tract and retain talent — even though they do little to motivate. So, how does a well-meaning system end up doing so much harm? Everyone agrees managers have their own job responsi- bilities in addition to people management roles, so they 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. Those who do endeavour to keep track do so through their own subjective lens. Then, of course, we have the forced performance distribu- tion. Although very few organizations admit to using such dis- tribution curves, in the end, 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 perfor- mance guidelines. The last key factor is timing. Typically, merit budgets for the next year are set in the fall of the current year. Performance reviews and the compensation cycle for the preceding year are typically held in Q1 of the next year. This is a long time period for any performance recognition or reward to be effective. FIXING THE MODEL How then do we transition to a healthier method that actually promotes great performance and employee engagement? The answer involves courage and leadership to do something differ- ent, away from the pack mentality. Historically, we've treated merit increases as expenses and payouts. The underlying key will be to shift this paradigm from an expense to an investment. This is done by bringing the merit monies forward and putting them in a pooled account employees can access based on their level of engagement and performance. The actual earnings would be re ected immedi- ately and the payouts could be done quarterly so there is direct linkage between the effort 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. In actual fact, what ends up happening is a hybrid approach between the investment model and tradi- tional approach. No doubt, some will argue that bringing monies forward be- comes cost-prohibitive as compared to the traditional model. All things being equal, I would agree. However, when coupling the new approach with innovative social platforms that allow for the true capture of quanti ed performance metrics, the playing eld becomes altered forever. How good will employees feel knowing where they stand while fully understanding the con- nection between their performance and their pay increase? This is a bold approach and while many companies may be slow to adopt, once the door opens, few will turn back. Innova- tive companies will bring to bear new methods that will make pay for performance not only meaningful but fun and engaging. The elegance of such an approach means it doesn't have to be an all-or-none, but one organizations can evolve over time, al- lowing 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 payout continuum, based on more quanti able and transparent metrics, reinforces the connection between the worker effort and the payout. This "incentive"-based model will in turn pro- mote better performance and engagement behaviours. John Cardella is an industry in uencer, thought leader and co-founder and CEO of Effort Generation, an engagement building software ser- vices platform. For more information see www.5paq.com. You can follow him on Twitter @cardella5paq. THE MYTH OF PAY FOR PERFORMANCE "THE KEY IS TO SHIFT THIS PARA- DIGM FROM EXPENSE TO INVESTMENT." John Cardella