Paying less to a known devil

Ironically, the more we know of employees and their longevity in an enterprise there is a greater probability of those employees being short changed in terms of rewards and remuneration – the Known Devil Syndrome!

Consider the life of an organisational slogger, someone who has spent the last many years focusing on working towards the achievement of his/her goals, consistently and regularly. These kinds of workers are not super stars or king makers but are regular Joes that we see every day at their desk doing what they are supposed to do and more without making it headline news!

Throughout history, employers have been challenged by the task of attracting, developing, retaining and motivating employees. From the simplest and ancient barter systems of employee compensation to the complex incentive formulas, stock options, golden handcuffs security umbrellas of today, the organisational premise has been the same: if employees create value, provide productivity and results to the enterprise, the venture helps them earn a reward.

In their simplest forms, employee compensation and benefits have involved cash or commodities – and that still holds true to a large measure even today. The employee provides a service and the employer provides cash compensation and/or a benefit of value to the employee. But one needs to look beyond this basic construct, and myths abound about what makes people work, feel rewarded and want to stay on with any employer.

Retaining is one challenge, but motivating people to deliver more is quite another. Organisations have, over the years, realized that people are motivated when the system:

• Pays for how results are achieved
• Pays for skills, behaviours and competencies that support future success
• Rewards organisational, team and individual efforts
• Uses a broad variety of reward vehicles
• Uses a long-term evolutionary approach incorporating HR systems and processes
• Makes money work for motivation, but also
• Makes something more than money work for motivation

Where organisations develop such systems, they tend to have lower quit rates, and employee retention is greater. Quite clearly, organisations today have, either explicitly or implicitly – and sometimes by default – recognised the fact that the key to the achievement of the organisational purpose is the human resource. If this resource is treated as an input resource in the overall organisational processes, there is a resource cost attached to it.

Broadly speaking, the economics of demand and supply, and theories of price elasticity, apply to human resources. But what complicates the management of human resources is that one has to superimpose complex theories of managing human behaviour to basic economic theory.

Designing and managing an effective reward system is a management exercise that involves economic and financial expertise, apart from detailed knowledge of human behaviour.

Designing and managing an effective reward system is, therefore, a management exercise that involves economic and financial expertise, apart from detailed knowledge of human behaviour. On the economic and financial side, companies have been innovating plenty in the area of monetary rewards. Thus we have individual performance-related pay, merit pay, competency-related pay, pay for contributions, bonuses and variable pay, team remuneration rewards, risk-pay, profit-sharing schemes, profit-related schemes, role awards and many more.

Organisations must reward employees because they are, in turn, looking for certain kinds of behaviour, what is today called as competencies. They need proficient individuals/teams who agree to work with a high standard of performance, loyalty (challenged by scholars but still holding true) and ground level commitment.

Individual employees, in exchange for their commitment, expect certain extrinsic rewards in the form of performance pay promotions, salary, fringe benefits, perquisites, bonuses, or stock options. But, more importantly, individuals seek intrinsic rewards such as feelings of competence, achievement, responsibility, significance, influence, personal growth, fulfilment and meaningful contribution.

Experience shows that high levels of pay do not always mean higher levels of retention. Despite financial hooks such as stock options, bonuses, sign-on bonuses, and lump-sum reward systems, organisations such as Apple, Google, Airbnb, Sun Microsystems or JP Morgan Chase also see retention as a function of non-monetary rewards.

In today’s world, compensation systems cope with the need to pay for the risk of continuing to be employable.

Reward employees whose performance is assessed and benchmarked to a competency standard. This approach communicates to the individual (or group) that his/her contribution to the organisation is highly valued. The overall message is simple – improved performance results in improved remuneration. Essentially, workers should feel that their remuneration is fair in relation to their effort, performance and contribution when compared with the remuneration and work performance of their colleagues. An improved behaviour that drives performance receives better remuneration.

This approach addresses the individual’s need for reward through growth and the organization’s need for sustained growth. It also accelerates learning through sharing/synergies. Anglo-Dutch giant Unilever retains its high performers by giving them growth and learning opportunities in a culture where people are moved from job to job and are given responsibilities early. Unilever makes training and job rotation a basic means to career and personal growth.

While the principle of rewarding high performers may well reinforce winning behaviour, it is equally important to motivate those employees who are not performing so well. Good reward systems must not, therefore, concentrate only on employees who are performing well; they must also consider the motivation of other employees so that all employees are encouraged to improve their performance.

Good reward systems must not concentrate only on employees who are performing well; they must also consider the motivation of other employees so that all employees are encouraged to improve their performance.

This means employees can be moved across businesses to ensure cross-pollination of talent and accelerated learning. There could also be transfers (hiring from within) to match best opportunities with best talent. ITC is a good example of hiring from within. Here is an organisation that would think many times before bringing in lateral management personnel directly from the market. ITC managers respect their internal culture and the way they do things far too much to compromise on outside hiring to meet headcount needs.

When reward systems are based on results and outcomes rather than mere efforts put in by individuals, employees are encouraged to concentrate on the standard of the end-product rather than the input or effort. Employees are thus not just rewarded for turning up in office early or working long hours.

Citigroup, operates on the principle that employees should be hired, trained and provided expertise through corporate and product knowledge. They are then given the freedom to meet with customers and offer them the suite of products and services that Citigroup has to offer. To Citicorp results matter. Their employees have been adequately trained and capabilities built for them to fly their aircraft, take off and land as they choose. So long as they deliver results.

By establishing a correlation between remuneration and the performance of individuals or groups, different work systems can be emphasised. Merck works on the basis of both. The company offers its employees a reward system based on several criteria – extra work above expectation, team work, new ideas, customer/cost management, achievement, job attendance.

The central feature of many systems is the assessment of performance based on the achievement of previously established plans and objectives. This management technique, therefore, encourages individuals and groups to plan their work activity and achieve predetermined objectives. The main elements of this system thus are: identification of top performers, developing career progression charts, giving employees development inputs and special assignments, mentoring them, and exposing them to multiple functions.

(The author is a managing partner & lead for North America, Talent Management Platform Solutions with TCS Canada Inc.)