By Ilsa H. duVerney, ContributorHAVING WRITTEN a few weeks ago on "A Performance Management Tool that Works," Readers have asked for an article on Pay for Performance. If ever a concept has several definitions, it is: Pay for Performance. Employers, unions and staff have conjured up definitions which suit the current situation. The concept of Pay for Performance is an evolving one and hence there are several definitions. Some say it is Incentive Plans, Variable Pay Plans, Compensation at risk, Earnings at risk, Success sharing, Share Ownership, Profit sharing, Merit increases and it goes on and on. What is sure, is that, once upon a time pay was considered an entitlement. Pay for Performance signals a movement away from entitlement.
During the 1980's performance related pay became the most emphasised feature of wage and salary administration. This was a direct result of the "enterprise" culture. While managerial, executive, clerical, technical and professional employees received incentive payments, blue collar workforces were subject to redundancy programmes as a means to improve productivity, while the use of incentives declined.
INCENTIVES IN CONTEXT
An incentive is a reward. Incentives recognise and pay for a contribution. It may be cash or non-cash. It may be paid once or repeated. It may be given at regular intervals or at irregular intervals. The objective of an incentive is to draw forward a contribution from employees, which would not normally be forthcoming.
An effective incentive scheme should be designed in line with the "socio-technical state" of the organisation. The following elements of the scheme should be carefully considered:
The level of contribution against which the incentives will be paid should be achievable, realistic and stretching
The method of measurement should be appropriate to the work.
The pay should :
- meet employee expectation
- be affordable to the organisation
- be sensibly and clearly linked to performance
- be equitable
THE ISSUE OF EQUITY IS VITAL
An incentive scheme will not survive in the social dimension of the organisation if it creates comparable problems. Therefore the incentive payments needs to be clearly placed within the organisation's existing pay structure.
JOB EVALUATION
The question many have asked is where does job evaluation come in? Job evaluation is a process of determining the relative worth of jobs within an organisation, as a basis for the payment of differential wages and salaries. This approach is consistent with performance based remuneration policy because the highest remuneration levels are paid to those jobs which contribute most to corporate objectives and therefore the improvement of corporate performance. Job evaluation rewards the worth of the job and not the contribution of the individual doing the job. Job evaluation measures job worth. Incentives schemes and pay for performance are more involved in the exercise of determining people's worth in terms of their performance in the job. Payment for Performance therefore commences from the person is engaged to perform a job.
REACH FOR THE STARS
Pay for Performance is a most useful tool for organisations in light of the competitive environment. In the New work order, Pay for Performance seems to be the way to go. It puts the employee in charge of performance. The entrepreneur has long discovered this.
Pay for Performance is results oriented. All workers are required to attain expected performance and that is what is evaluated and compensated when persons are engaged to work. If persons cannot attain or maintain the expected performance then appropriate action will need to be taken. Where performance exceeds expectations, then there is, what is called, Pay for Performance, which is a form of incentive to have persons take control of their performance and reach for the stars.
PERSPECTIVES
It may be said that employers have little to fear in adopting the concept of Pay for Performance. Why? Perato's principle (the 80/20 rule), as well as the Bell Curve guarantees that the majority will be average performers, so the pay out will be "controlled."
Workers on the other hand may fear that the system of pay is not fair and lack of trust will prevail. In light of this, pay for performance becomes, "A not to be trusted management project".
Pay for Performance can be enabling and empowering which calls for a strategic objective set up and approach. The whole system should be involved in charting the change. In this milieu, employees no longer have jobs they are said to be, on a mission. Roles are evaluated, standards are discussed and pre-established. There is a Vision and a Mission. Objectives are cascaded and alignments are done to get optimum performance. Measurement gives way to an outpouring. Pay for Performance is an adult affair designed to create triple wins employees win, employers win, customers win. For effectiveness, the level of maturity of the players needs to be evident, Values such as honesty and integrity are cultivated. Proactively we can create this culture.
THE NEW WORKER
Recent research suggests that job candidates look for organisations with reward systems which fit their personalities.
Materialistic Relatively more concerned about pay
Low Self Esteem Want large decentralised organisation with little pay for performance. Risk takers Want more pay based on performance
Individualists want pay plan based on individual performance not group performance
REWARDS
Rewards should help organisations attract and retain employees. The organisation should make high performance an attractive option for employees. Employees should be encouraged to build new skills and gradually foster commitment to the organisation. The challenge is especially big, as we are just beginning to realise all the different things which can serve as consequences (formerly called rewards and punishments) which may be administered to employees for performance. The bottom line is that fair administration of rewards will lead a company to higher performance levels increased profitability and increased productivity.
Contributed by: Ilsa H. duVerney HRD/Process Consultant, Managing Director Productivity Plus Ltd (Ja). Please respond - Email: ppl.hrd.duv@cwjamaica.com
