Employees with high potential are worth fighting to keep and the best way we can do that is by setting out and communicating a reward framework that is able to measure and reward them with both salary and variable pay. Here are my seven key points.
1. Establish Salary vs Variable pay
Variable pay - whatever form it takes - rewards past performance and is backwards-looking, whereas salary is future facing and is set based on an employee’s capability, and the value you place on them over the forthcoming period. Potentially they will grow into that value but keeping the two separate and establishing the value of both is crucial in motivating in different ways, and at different times.
2. Measuring Variable pay
The first question always needs to be whether you are reviewing an existing scheme or implementing a new one. The stakes are raised with high potential employees, and you need to ask what you do and do not want to encourage. Whether it’s a short-term annual bonus, a longer-term exec level scheme extended over multiple years, or something commission based, ask what behaviours you want to drive with this sort of reward. I can think of clients whose sales teams should have been hunting for new business but were instead farming existing business because their incentive scheme was designed and balanced on the wrong metrics and therefore incentivised the wrong behaviours.
3. Variable pay – Company vs the individual
Still related to variable pay, the company also needs to define and understand how much should be based on individual contribution, and how much on the company performance. Striking the right balance there is very important.
4. Clear metrics and communications
Leading on from the last point, you then need to ensure that the metrics being used to measure individual and company performance are clear and well communicated, in a way that leaves no ambiguity. If a high potential performer works hard and thinks they're going to receive a certain reward, and at the end of the year receives a lot less than expected, they are likely to disengage and lose faith in the structure, their manager, or both.
5. Timeframe of reward – variable pay
The timeframe of a backwards-facing reward is also important. Commission should typically be paid monthly or quarterly because you want your salespeople to see and feel the direct impact, the tangible reward for the work they have recently done. Annual bonus schemes need careful communication and reinforcement, otherwise the reason for them can be long forgotten, which can lead to a lack of appreciation on both sides.
6. Framework for decisions around fixed pay
Similarly, we need to engage people in a forward-looking sense, in defining and re-defining their capability and value to the company, in a way that can impact their base salary. This includes having a mechanism to identify growth. So, what framework do you have in place to identify whether someone is a high potential employee? Thinking of clients with a high graduate intake, their retention rates are best when their graduates are promoted within the first 12 months, often seeing a substantial salary increase, in recognition of the fact that they have learned a lot within that time.
It is not only true of graduates - if people are growing and developing within their role, you need a framework to recognize that in their salary. That will often then also affect their bonus, which tends to be a percentage of salary.
Decisions around that progression can be managed in a variety of ways, from the more simple length of service rationale to more granular and considered methods taking into account contribution, skills acquisition and productivity, which tend to apply better to more modern and hybrid working models.
7. Governance
Linking strongly to efforts around pay equity and pay transparency, the final point is around governance of salary increases to guide, sense-check and safeguard the whole process. Based on data-backed job evaluation and pay benchmarking, that framework should help a company decide their pay stance externally in the market – including the potential for paying upper quartile for high performers – and ensure that internally managers are mostly making decisions objectively, based on competence and performance.
Only if you have a robust framework in place can you achieve the kind of balance and flexibility that allows some give-and-take between employer and employee.
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For advice around reward please contact Spencer.Hughes@innecto.com or get in touch to chat with a consultant and request a platform demo.
