This article is the second part of a two-part series; for part one, please click here.

This week, we’ll look at what you need to consider before introducing paying for performance and using some recent client examples to illustrate potential pitfalls. 

However before considering it, I suggest you take the following into account:

What do your employees and managers want?

• Is there a desire or a real business need for performance related pay?
• How would it fit with your values, culture, business plan and reward aspirations?
• What will it give your organisation that you don’t have now?

Just because others do it doesn’t make it right for your culture. The true benefits are to differentiate and motivate those who are going above and beyond, by recognising their efforts financially. But there are other ways to do this.

Recognition, like communication, is something we all think we can easily do. But time and time again, these areas are underestimated in terms of how much time and effort is needed to get them right. A well planned and communicated recognition framework will have far more of a positive impact than a forced PRP framework that does little to motivate your staff.

I’m not necessarily talking employee of the week approach – instead it’s about aligning recognition to your values and culture, giving managers and peers the opportunity to recognise and share achievements regularly and with meaning. We are currently working with 2 clients in the Academic sector for example who have decided that PRP is not adding value and are re-examining their approach to recognition to use their budgets in a more innovative way that creates a better return on investment. 

The state of your performance management system

We often hear how performance management is dead. It’s not really dead - more the traditional application of it is. Moving to a more fluid approach that provides feedback and focuses on growth, I believe, is a positive thing.

However, removing ratings (which many organisations have done) creates another dilemma - how do you fairly distinguish between employees if there is nothing to hang your decision from? That’s not to say ratings are the only way to do it, but in their absence, decisions that affect reward need to be seen as fair and transparent.

This is where management capability comes into play and having the confidence that managers can fairly apply decisions and feel prepared to stand by them.

How well it is understood and communicated

One of our clients ensures that their PRP system is applied very fairly and goes through several rounds of calibration before final decisions are made on the top 40% of performers. The challenge they face however is that this robust process is done behind the scenes and decisions are not properly communicated back to employees - the whole process was regarded as ‘a dirty little secret’.

You could have the fairest and most robust decision making process in the world, but if employees don’t understand how the decisions about performance are made, the impact is lost. As we become more transparent about pay (and the world is most definitely moving in this direction) we need to build trust with our employees about how pay decisions are made. Sharing high level analytics around average pay awards, factors used to make decisions, rating distributions by gender / level etc all help to build confidence that you are taking fairness seriously. 

There’s no quick fix to implementing performance related pay. In not-for-profit organisations, social and moral purpose provides an additional lens to check back through before deciding if it’s the right thing to do.

Whilst we seem to be seeing a move away from PRP with many of our clients in this sector (mostly due to the limited impact small budgets are making), I think the jury is still out in the sector as a whole, but those who do decide to implement it, need to ensure they have a very clear view on what they believe they will achieve. 

Innecto can help with any aspect of pay and reward, including performance-based reward. Give us a call on 020 3457 0894 or email Justine.woolf@innecto.com
 

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