Wednesday, October 12, 2011

Differentiating Performance And Rewards

You just received an above average performance rating, which put a big grin on your face.  Which was soon wiped away when you heard that you'd receive only one percent (1%) more of a salary increase than "Joe Average" down the hall (there are no secrets out there).

One percent more?  For giving 110% effort for a full year?  Not worth it, you say?

What Does One Percent Gain You?

The pundits say that performance rewarded is often repeated.  So what if good performance is not rewarded?  In the eyes of the recipient.  Likely you won't see the same level of personal contribution again next year.  Instead, what you'll see is more of "Joe Average," or worse.

So how much of a reward difference between you and Joe is enough to keep you and other high performers motivated and feeling appreciated?  Because Joe seems to be content with his lot in life, and you're not.  Is a fair differential 2%, 3%, or even more?

Does the organization realize that such soul searching is happening among those employees they most want to retain?  Can their recognition systems balance the need to reward better performers against the reality of tight budgets?  It might mean that one would have to take from Joe to pay Bob – because the pool of reward dollars is not likely to expand.

But that idea flies against the practice that most managers follow - of trying to reward everyone – to keep everyone happy.  After all, if you've put in your twelve months you deserve a raise at the end, don't you?  Kind of automatic, especially if the average spend isn't much.

Have a look-see at how your high performers are being rewarded, then compare that against Joe's contribution and reward.  Are you being fair?  With Joe, probably, but how about with the high flyers?  You can afford it if Joe left.

Can You Make a Performance Decision?

Another consideration for determining fair rewards is the number of performance ratings you have in your appraisal system.  For example, with a seven scale system (from Walks On Water to Show 'em The Door) the need to provide percentages for at least five assessment scores makes things rather tight.  And if you try to maintain a two percentage point differential between performance levels, the numbers might become higher than what's affordable (if a 3 rating [Average] gains you 2.0%, then what do you do for a 7 rating?).  And what's the population density of those receiving a 4, 5 or 6?

And while you're ruminating over that dilemma, would Joe Average  be satisfied with a 2.0% increase?  He's going to grumble and complain about what's "fair" for those twelve months he spent on the job.

So you say, a proper rating scale looks to be three factors, right?  Wonderful, Pretty Good and Needs Improvement.  With three factors it's easier to provide reward differentials that make a difference.

But then reality bursts that nice fantasy you had going.   Many companies experience managerial ambivalence (can't make a decision) around performance assessments, where the desire is great to place employees in between ratings, as in 1.5 or a 2.5 score.  Somehow the employee(s) just don't fit right into those three neat buckets.  "We need more choices," they say - and so the five scale system was borne.

When the managerial ambivalence is acute, more than a few companies have decided that even five performance ratings aren't enough to accurately reflect employee performance; thus the seven scale system was created.

And in each case the ability to differentiate performance with rewards  has lessened.  How do you reward a 7 or 6 rating, vs. a 5, vs. a 4, vs. a 3, etc,  when the average spend for everyone might be only 3.0% - or a tad less?

You don't.  At least not if you try to reward everyone.  You won't have enough money.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  With over 30 years Rewards experience Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Thanks to Compensation Café


No comments: