How to use your reward strategy to support good performance
Every client we have is likely to want some kind of high performance culture, but where some fall down is by not making it clear enough what high performance means. For some it leans towards performance outcomes and specified KPI’s, for others around driving workers’ skill development and competency levels. It is very difficult to properly align your reward to support performance, whatever it is, without first knowing what this means to your organisation, and then getting real clarity around the purpose of each aspect of your reward suite.
Plan in the short-term and the long term
As well as defining what high performance means overall, companies also need a clear line of sight around what it means both in the short term and the longer term. Setting a five-year plan is great, and something many companies do, but if you fail to define metrics to measure how it should play out in each of those five years it’s difficult to drive in-year performance. Invariably, you end up with employees who either are disengaged with bonuses or pay increases or start expecting them because they don't feel like they can influence them.
The harsh reality to making performance-based decisions
If you're going to align your strategy to performance, think through the realities of doing that, particularly if you are using variable pay to drive performance. Invariably it can mean making tough decisions if people haven't performed, especially if there are mitigating circumstances. One option is to use discretion in these circumstances, however this can undermine the plan and also reduce the clarity around what performance means in your organisation. Defining what good performance looks like is important here because it can help with judging and navigating those tough decisions.
To attract and retain talent by driving performance, try to see your Employee Value Proposition (EVP) from a total reward perspective, rather than dealing with things in isolation, which can lead to things becoming fragmented and unclear. Getting the whole package right can lead to better engagement, which generally translates into greater productivity.
For the EVP to drive performance, at least an element of it needs to be individualised and tailored. Overall it must be fair, equal and equitable, but with a degree of individualization. More than ever now, we have multi-generational workforces that have moved away from the one-size-fits-all and employees like to choose what's most valuable to them.
For bigger brands to retain authenticity it can also be important to make sure your EVP is aligned with – and not at odds with - your customer value proposition. If a new recruit thinks that working for a company is going to be fresh and fun because that reflects its brand or advertising, it will jar if it’s not, and people could end up being disappointed.
There is sometimes a tricky balance to strike between differentiation and equality. One of the reasons clients sometimes hesitate with differentiation is that they worry about workers’ perceptions of fairness and consistency when it’s applied. This is understandable and one way to mitigate is to have clear criteria and explanations around why different packages might exist for different groups. Typically, for example, sales, commercial or senior roles may be geared more towards bonus than base pay. Being clear and transparent on this will allow you to react and stay competitive in the market by attracting and retaining the best talent whilst still being fair and consistent with your reward.
Recognition and the role of management
A great body of research shows that monetary reward is by no means the sole motivator, and recognition – with or without a financial element – can stoke the fires too and help drive and establish those contagious performance habits you really want.
Heavily linked to recognition is the competence and capability of your line managers. Even the best reward strategy can fall short if line managers are not capable of supporting it. If managers cannot hold decent performance conversations and evaluations, and instead default to taking the easy option, this will all fall down. Worse still, if Team A manager can do it but Team B manager avoids it, the whole scheme is undermined and stops feeling fair.
If there is a process to go through to upskill your managers, do it, and if that skill gap means waiting a while before you can meet the full aspiration of your reward scheme, take a longer-term approach to phasing things in once they are fully on board.
Finally, a hot topic: wellbeing. If you introduce something new like performance-related pay and it marks a change in your culture, make sure that change does not happen at the expense of workers’ wellbeing because it could also have dire consequences for the company. We’ve seen clients inadvertently sleepwalk into a new culture where people feel under far greater pressure to work longer hours or simply stay longer in the office. These things can end up negatively impacting an organisation, from a reputational viewpoint outside and in internal retention. Be mindful too that a fast, aggressive culture change could disadvantage groups such as part-time workers, parents or those with caring responsibilities or disabilities
Generally, the best way to mitigate all these challenges is to be clear and transparent in the way you set up and communicate your scheme: how it changes working practices, how staff can feed into it and how they can track against it once it’s in place.