Employees must be motivated to contribute to meeting organizational objectives by performing at a high level.
There is an abundance of research that supports the power of rewards to motivate performance. Of course that same research suggests employees must believe rewards are based on performance and that the rewards are equitable, competitive and appropriate. Occasionally claims are made that extrinsic rewards can negatively impact the intrinsic rewards experienced by employees. But these conclusions are generally based on laboratory research unrelated to the world of work, and there is no evidence the results are generalizable to the field.
The three most widely researched behavioral theories related to motivation are expectancy theory, equity theory and reinforcement theory. The model shown above incorporates all of these theories, suggesting there are four pre-requisites for performance the employee must:
- Be able to do what is required
- Be allowed to do what is required
- Know what is required
- Want to do what is required
There are numerous things an organization can do to motivate their employees to perform well. Research has found that “knowing what is expected” has the most impact on employee satisfaction and effectiveness. Although it is easy to claim employees clearly understand the criteria and standards used to evaluate their performance this is very often not the case. My experience with focus groups is that employees frequently admit they have a general idea of what is expected, but feel they lack the information necessary to give them confidence that they are on the same wavelength as their managers. Extensive research on goal setting and feedback establishes that a clear understanding and acceptance of stretch goals has more impact on motivation than most other factors. But even though an organization has a goal-based performance management system, much can get in the way of effectiveness.
Rewards practitioners should pay particular attention to how their programs impact the “wants to do it” pre-requisite. For example, if a high performer finds that the “consequences” of their contribution (pay increase, incentives) bear an uncomfortable resemblance to what poor performers received, it is unlikely there will be strong motivation for them to repeat the high level of performance. This situation is a common by-product of the “automatic step rate” systems that have been prevalent in many public sector organizations. The message sent, intended or not, is “stay employed, get a satisfactory performance appraisal and you get the same step increase as those who perform at much higher levels.” This is probably acceptable to those who perform at lower levels but those are rarely the employees an organization most wants to keep.
If individuals are to be motivated to do their best individually and to do their work in a manner that contributes to both the effectiveness of other team members and the effectiveness of the team, it is important to provide incentives to provide that motivation.
An excerpt from the article “Attracting, Retaining, and Motivating Critical Talent” Email email@example.com to request a copy of the full article by Robert J. Greene, PhD, CCP, CBP, GRP, SPHR, GPH
Rewards practitioners must make decisions as to the types of strategies they formulate and the programs they design to support strategy. A critical issue is whether to maintain internal consistency. Another is whether to emulate what other organizations do or to innovate.
Both the internal consistency versus customization and the external emulation versus innovation decisions are explored. The objective is to treat HR as a “decision science” and to provide a framework for making informed decisions about the type of rewards strategies and programs that will be utilized.
“What works, is what fits” is a guiding principle that should be taken seriously. What fits the mission, culture, internal and external realities, strategy and structure is what will likely be effective. Therefore, it is wise to assess the characteristics of the context within which a rewards strategy will be implemented and administered, to provide a basis for deciding what will fit.
Decisions should be informed by all relevant evidence. What other organizations are doing and how effectively their strategies are working is certainly information to consider. What other parts of the same organization are doing should be an input as well. Research study results in the field should be incorporated into decision-making, as this will provide a conceptual framework to use in formulating strategy.
Finally, creativity should be applied when no clear path is evident from what others have done. Effective innovation requires an understanding of organizational context and a clear notion of the objectives for any strategy, including rewards strategy. It also requires the conceptual base that theory and research can provide.
Emulate or innovate… but in all cases, do what fits the context and the objectives, devoid of a bias that one is always better than the other.
An excerpt from “Rewards Strategies and Programs: Innovation vs. Emulation” by Robert J. Greene, PhD, CCP, CBP, GRP, SPHR, GPH. Email firstname.lastname@example.org to request a copy of the executive summary.
This is the era of “big data” and “analytics” if you listen to the pop literature. And to some extent it is… or should be.
Management increasingly demands evidence to support recommendations, rather than “that’s what others do” or “it is prevailing practice.” And management is also realizing that mimicking the strategies others use to compete for talent can only move the organization towards parity. There is also an increasing recognition that in order for a strategy or program used “there” can only be expected to produce a similar result “here” if “here” is identical to “there.” And that is almost always a bad assumption.
Rewards practitioners should of course use benchmarking to determine how pay structures and pay rates compare to prevailing market rates. The benchmark data is used to support recommendations to move the pay structures x% and to budget y% for base pay adjustments and incentive awards. Information is in plentiful supply… research studies and compensation surveys are full of data. But deciding whether the information is of high quality, whether research findings are sound and whether prevailing practices are appropriate to an organization to emulate requires the appropriate level of expertise in research evaluation and quantitative analysis.
And even after the credibility and relevance of data to the organization is established how the data is applied matters greatly. If appropriate analysis is not applied correctly the data can become misinformation. High quality analysis can provide a clear picture of “what is,” but there is still the issue of “what to do about it.”
An excerpt from “Analytics In Rewards Management” by Robert J. Greene, PhD, CCP, CBP, GRP, SPHR, GPH. Email email@example.com to request a copy of the full article.
Communication is key to promoting an understanding of the strategy and the reasons why it is what it is. Communication also can inspire employees to focus on organizational objectives and to contribute to its performance.
Effective communication is one of the best tools rewards practitioners have. Informing, influencing and inspiring employees is best done by ensuring they understand the reasons for the rewards strategy and have the opportunity to surface their beliefs about its soundness. Every employee wishes to be rewarded equitably, competitively and appropriately. But if employees are left to guess what the rewards strategy is, why it was selected and how it impacts everyone, discontent can be created by their assuming things are worse than they are. Respecting the right of employees to know how they and others will be rewarded can help clear up misperceptions and convince employees that the organization is acting appropriately.
An excerpt from:“Communicating Rewards Strategies To Employees: Informing, Influencing and Inspiring” Email firstname.lastname@example.org to request a copy of the full article by Robert J. Greene, PhD, CCP, CBP, GRP, SPHR, GPH
The first step in creating an effective sales compensation system is to develop a strategy that is derived from the objectives of the organization and its business strategy and that is a good fit to the context within which the organization operates. The importance of sales will depend on that context. A monopoly with no substitutes for its products may view sales as automatic and requiring no special effort. An organization selling a product that is a commodity, with many competitors, may view sales as its primary focus… its ticket to survival. How important sales are to an organization should determine the resources committed to generating sales and the amount of attention paid to how much and how salespeople are compensated.
Given these realities, it is necessary to define the context within which sales activities are performed and to formulate a “good fit” sales strategy. The context is defined by a number of considerations:
- the nature of the product(s) the organization has to offer in the market: the economics associated with it; its competitiveness with others providing it; the existence of substitutes; brand recognition and strength; current market share
- the nature of the customer: the needs and priorities of potential buyers; the image of the product with prospects; economic ability of prospects to afford it; value of the product to customers; existing customer loyalty; significance of product relative to customers’ total purchases
- the nature of the sales process: typical timeframe; sales channels; role of various sales and support personnel in making the sale; points of contact in the organization
- the nature of the labor market for sales personnel; how much and how competitive organizations pay; the supply of the needed knowledge/skills; the demand for critical knowledge/ skills; current and evolving competitive conditions in the industry
While all of these are important considerations understanding the role of sales personnel is perhaps the most critical. In some instances, the “sales representatives” serve as relationship builders and conveyors of product information (e.g., pharmaceutical reps calling on doctors). In other situations, the representative makes the sale (e.g., call center outbound sales personnel). With the advent of new technology many sales personnel never see the customer (e.g., outbound telemarketing reps), while others practically live with the customer over extended periods (e.g., reps selling enterprise-wide IT systems).
Given the wide range of variability in the role played by sales personnel it is typically folly to attempt to mimic what other organizations are doing with the sales plans. Certainly a program designer must be aware of the compensation levels offered by competitive organizations, to ensure the program will attract and retain the quality of personnel required for success. 95% of getting it right is by understanding the role played by sales personnel and the significance of that role. Once that is understood the organization can determine what would constitute the ideal package of behaviors and results expected of the sales personnel.
An excerpt from:Effective Sales Compensation Strategies & Programs. Email email@example.com to request a copy of the full article.
Once the market of choice is defined and the prevailing levels determined an organization must decide how it pays relative to that market.
Most organizations will define multiple markets, each selected for a specific skill set, occupation or category of employee. And the competitive posture may be different for different types of employees. It is common for an organization to identify core critical skills and to pay them more aggressively than other skills. There is rarely enough money to pay everyone aggressively, making it prudent to be selective in applying an “above market” posture.
If the organization decides to pay above market levels for specific skills the question is:
“by how much?”
Too often the stated posture is expressed in a way that is statistically unsound. When formulating a competitive posture relative to market it is necessary to understand both the economic and behavioral implications. Even paying at market average may be a challenge for an organization with a high labor component in its operating costs, particularly if it competes with capital-intensive organizations. A bank with 70% of its operating costs in workforce costs does not have the same latitude as an oil refinery, which typically has about 1% of its cost in pay and benefits. For jobs/skills that are transportable across the two organizations, such as administrative support jobs, the bank cannot expect to be able to compete based on compensation. So affordability is a major factor in deciding competitive posture.
Even if an organization can afford a premium posture relative to market it still must ask:
“is it worth it?”
If the extra cost does not increase the quality of the workforce it must be questioned. The related issue is whether employees will behave differently if they are paid somewhat above market. And if economics mandate paying above market for critical skills means the organization must pay other occupations below market the impact of that posture must be evaluated. If key people leave the savings may be illusory. Even if only a few leave the organization must analyze who does exit. If it is the best people than once again the “savings” may turn out to have such negative impact on workforce quality that it is a shortsighted strategy.
Paying “at market” seems to be a reasonable competitive posture. But pay must be defined, market must be defined and the posture must be defended. Organizations must devise a strategy that best fits its context and that is justifiable. Both the economic impact and the behavioral impact of the competitive posture must be evaluated and a balance achieved.
An excerpt from: Competitive Posture: Critical Element Of A Rewards Strategy
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The dynamic economy of the last decade has presented significant revenue challenges for public sector organizations. Their workforce costs for current employees are largely fixed and significant liabilities are accruing for items such as pension programs and retiree health guarantees. Declining revenues during economic downturns have caused them to attempt to reduce headcount while maintaining service levels, even though this approach may hinder performance into the future. It is critical for them to identify the workforce costs they can gain control of and to formulate strategies that will address the imbalance between revenue and costs but ensure they can fulfill their missions.
The U.S. government for example has long used a step-rate base pay system that advances employee base pay rates on a specified time schedule. This type of system has also been widely used by state, county and city governments. Although the general schedule system still exists for about half of the federal workforce, many agencies have found it to be ineffective in getting and keeping the workforce they need, and have, therefore, exited the system by developing “excepted service” programs. These programs most commonly utilize open pay ranges; merit pay, performance incentives and performance management systems that differentiate based on contribution and look more like systems prevalent in the private sector. And the Office of Personnel Management has experimented with variable pay programs as well. Many state, county and city governments still utilize the time-based approach, as do quasi-governmental organizations. But that is changing in some types of public sector organizations. About one-third of water utilities still use step rate systems, according to the American Water Works Association’s annual Water Utility Compensation Survey. The trend, however, is moving away from basing rewards on longevity, evidenced by the fact that over two thirds of the utilities used step systems ten years ago. But water utilities often operate wit separate boards, since there is a strong argument for running a utility like a business, enabling them to employ different strategies than the counties and cities they serve.
Government and nonprofit organizations need to consider the implications of using private sector techniques as part of their compensation plans, since some practices could potentially have a socio-political impact. For example, if a governmental entity uses merit pay, an employee receiving a smaller increase than a peer often has appeal processes available that can be used to “wear down” managers who do differentiate based on performance. A common argument by employees and unions is that there are no clear, quantifiable metrics upon which to appraise performance, at least at an individual level, so why differentiate. However, this is a weak argument. Subjective criteria are broadly used in private sector organizations to appraise performance and to make decisions about pay increases. But despite this reality it has proven to be very difficult for many public sector organizations to move from time-based pay to performance-based pay and to adopt variable pay programs.
The proper path to follow for a public sector organization should be determined based on external and internal realities, culture and what the organization is charged with going forward. If the competition for critical skills escalates to the point that the entity is unable to get and keep the people necessary for continued viability, then change is no longer optional. But implementing and administering a merit pay or performance incentive program may require skills that do not exist in the organization’s management cadre. And the existing workforce may be so wedded to historic patterns that resistance to change may be monumental. Given these realities the demand for highly skilled HR and total rewards professionals may escalate in the public sector. Dealing with the potential obstacles to change will require expertise and commitment. The human resource function must be staffed with the knowledge and skills to face these challenges. And public sector organizations must recognize the need for, and value of the function.
An excerpt from:“Rewarding Performance in Public Sector Organizations” by Robert J. Greene, PhD
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