How effectively and appropriately an organization defines, measures, manages and rewards performance will have a profound impact on workforce effectiveness. Whether an organization uses the same strategy and programs for all employees is a critical question.
Employees playing different roles, trained in different occupations and socialized in different cultures present different needs, wants and expectations. They all want to be treated equitably, competitively and appropriately. And despite calls for equal treatment when rewards are at stake it is prudent for organizations to decide how employees are evaluated and rewarded based on the differences in what they do and what they contribute.
The book “Rewarding Performance: Guiding Principles; Custom Strategies” was written based on two premises:
- that there are fundamental principles underlying sound performance and rewards management
- that occupational/role differences should be considered when deciding how to reward performance.
Executives, sales personnel, professionals, support personnel and culturally diverse global workforces may all call for different strategies. What works is what fits. Prior posts have summarized some of the differences between specific types of employees. This post examines how organizations should face the consistency vs. best fit dilemma.
Some organizations reward employees using a single system. Those having a single base pay structure and one set of policies regulating how individual pay rates are administered within the pay ranges have emphasized consistency. If they do not use variable pay programs of any type and if they offer the same benefits to all employees they represent the poster child for the “one system for all” approach. At the other extreme are organizations that have multiple pay structures, numerous short-term variable pay plans and long-term incentives using equity. Neither group is right or wrong. As long as their strategies and systems fit their mission, their culture, their internal and external realities and their objectives it is hard to question their approach.
Many public sector entities fall in the “consistency” category, although to varying degrees. On the one hand they might progress base pay automatically, tied to time in grade. But this approach has been abandoned by many since it is the most expensive, least motivational and unappealing to top performers (an example is public utilities: a decade ago over two-thirds used step-rate progression; today less than a third do). Yet the migration to merit (performance-based) pay has in many cases proven difficult given the cultures that have prevailed historically and the resistance of unions. Adopting incentive plans in the public sector is difficult, due to the fear that public reaction would be negative. However, one sage individual in a government position providing oversight of the national research labs expressed his belief that the taxpayers did not want cheap science at the expense of the highest quality of science. This author worked with that individual to rewrite a DOE Order to allow contractors managing the labs to use variable compensation as long as several criteria were met. The positive reaction encouraged private sector organizations to bid on management contracts since high levels of performance could provide appropriate returns.
The private sector has an enormous range of strategies, due to the differences in the contexts faced by organizations. Start-ups and emerging organizations often lack the stable cash flow to commit to generous base pay and benefits programs, but they may be able to attract and retain talent using equity programs for critical talent. Organizations that compete based on price may be forced to carefully control fixed costs, including base pay and benefits. Yet they may identify critical roles (e.g., IT and Logistics in Walmart) and reward the people they need to be efficient most generously. Industry leaders can trade on their brand as prime employers and use a variety of strategies that are customized to fit different segments of employees.
Deciding an organization’s place on the consistency – local best fit scale is challenging. Often planners start by assuming consistency and then making exceptions where required. But this might cause them to choose administrative ease over localized fit. Rather, they could evaluate each occupational/role segment of the workforce and decide what would be the best fit when performance is defined, measured, managed and rewarded. Then similar strategies can be combined to produce an administratively manageable array of programs. As long as each local strategy is consistent with the culture and the principles embraced globally by the organization the reasons for doing things differently for different employees can be explained and defended from a business standpoint.
Robert J. Greene | Reward $ystems, Inc. 