Performance-related pay systems are becoming more widespread in UK businesses and commission-driven organisations rely on a workforce motivated by money. They're in it to win. It's competitive; it's every man and woman for themselves and if that's not who you are, you leave.
But performance-related pay systems are also increasing in popularity in public-sector and not-for-profit organisations.
So do remuneration packages have to become more competitive in order to attract and retain the best talent? Does competitive pay mean better retention?
This simplistic approach might seem like common sense, but performance related pay can be extremely emotive and even de-motivating if the system is not designed to suit the organisational climate. For example, does your business rely heavily on successful teamwork? Do you need your staff to buy into corporate level goals in order to get the best out of them? Is your organisational structure reasonably hierarchical and therefore reliant upon strong communication systems?
If the answer to all these questions is ‘yes', then an individualistic, objectives-only based performance-related pay system could potentially be divisive, as it encourages staff to think in silos with no incentive to understand their contribution to what the organisation is trying to achieve.
When tailoring performance-related pay to your organisational needs, consider the following:
Reinvent the wheel. Taking an off-the-shelf system that works in another organisation will not achieve what you want it to achieve. Tailor a system that's going to work in your organisation's culture.
Use a performance-related pay system to address as many organisational needs as possible. The objective doesn't have to be as narrow as ‘to reward and motivate employees'. For example, if it's recognised that team-building would facilitate core business, then look at a system that is team-based rather than individual-based. Objectives can be set on a team basis only, or there can be a split where employees have one or two personal objectives and one or two team-based objectives to achieve in order to be eligible for a bonus payment.
Focus your pay system on behavioural competency development as well as task completion. A system structured around task-based objectives only tends to narrow the performance management framework. Employees who develop their behavioural skills in line with the organisation's values should have this achievement acknowledged and rewarded as appropriate.
Link bonus allocation to overall corporate level achievement. If bonus payments relate to a recognised, communicated achievement against corporate objectives, employees' awareness of strategic level goals is heightened and an understanding of their role and their department's input develops.
Design an all-inclusive system that can apply to all posts, no matter how transactional, whenever possible. It may be you have two very distinctive groups of staff - such as office-based and maintenance - in which case two systems may be more appropriate. However, more than two systems and things become overcomplicated and difficult to justify. One central process that all staff can relate to and be a part of is ideal.
Talk to the top. It goes without saying. Performance-related pay is no different from anything else. Top-level buy-in is essential for the system to work.
Try it and test it. Ask a couple of departmental managers to pilot the system in advance of a service-wide rollout. Not only will this give you useful feedback to fine-tune the system, but it will also, hopefully, result in a couple of useful allies before all-staff briefings commence - providing they liked the system of course.
Introduce an individual scoring system for every employee if your organisational culture isn't the most discrete. Employees will talk, compare scores and undoubtedly focus on the negative. The subjectivity involved in a scoring system is unavoidable, even with the most prescriptive processes.
Set your pay system in stone. Annual reviews of procedure and practice and the occasional tweak to the framework are good practice. As the organisation develops, reward systems should also develop in order to remain a substantial part of a competitive staff benefits package.
Focus your system on financial reward. Ensure personal development plans and discussions on achievement sit at the heart of the process. The greater the focus on ‘how much money will I get?', the less attention is given to ‘what do I have to do to develop and improve further?'
Overcomplicate matters. Introducing complicated mathematical formulas for bonus awards means people lose interest and are less likely to trust the system. Personal achievement needs to be easily translated into corporate achievement, which in turn needs to dictate a monetary amount with clarity and transparency. For example, at an individual level someone may receive a tick in the box - they have achieved their objectives. This means they are eligible for a bonus payment, the precise sum is dependent on corporate-level achievement. The board decide corporate objectives have been achieved to a satisfactory level. Satisfactory means a bonus of 3%. (Good would have resulted in 5% etc)
And finally, do provide briefings and training on the system for all staff, not just managers. Be open and honest regarding the rationale for the system and what the business hopes to achieve through its introduction.
Lizzy Firmin is HR manager at Trinity House