Pay for Performance Part 3_ Making a Case.docx

Pay for Performance Part 3: Making a Case Carrie, anytime we talk about pay for performance, there's this underlying component with regards to performance management. And there are some who believe performance management may be a farce. Whether you agree or disagree, can you kind of explain that thi...

Pay for Performance Part 3: Making a Case Carrie, anytime we talk about pay for performance, there's this underlying component with regards to performance management. And there are some who believe performance management may be a farce. Whether you agree or disagree, can you kind of explain that thinking and what the challenges to performance management are? There are certain organizations, certain academics who recently have published information or have sort of risen the charge about pay for performance. We do see some larger organizations have decided to drop their pay for performance. We saw one organization that talked at our last conference, for example, Expedia, which has removed their ratings from their process. Now, that isn't to say that Expedia still doesn't believe and work on pay for performance, but they have decided in their organization the process of going through that rating system they didn't believe was worth the return. Now, on the academic side, there are studies that have been done over the years to say that from an intrinsic motivational value, if you assign a reward to having to do some sort of task, that decreases the intrinsic value of that. There have been certain studies that have said that employees don't do as well on certain creative tasks where they have to come up with something or really be creative to say that the results maybe aren't quite as good if there is a reward or a carrot hung out there. Now, I agree that there might be certain instances and circumstances where a certain amount of sort of a, if you do this, then you're going to receive that, may not, in certain circumstances, be the best course of action to take. But what we do know is there have been hundreds, literally hundreds of studies over the years that say that we know that not every person values money, cash. But what we do know is cash, if they don't value cash in itself, cash can be converted into so many other things that employees value. And as most of us who work in organizations where we have responsibility for compensation and total rewards, not just for a few, but for entire organizations, we have to set our programs up. We'd love to be able to set an individual plan up for every individual employee, but that's not economical, it's not efficient, and as we do that, we also have to keep in mind that we don't want to get into the equity theory problem where everyone spends all of their time, rather than doing work, comparing what everyone else's compensation plan is. So what we're trying to do in compensation is satisfy most people, granted the fact that we can't satisfy everyone. And if we can't satisfy everyone, the people that we for sure want to satisfy are the high performers, the high achievers, those that are moving the numbers. And so I always come back to square one, which is, at the end, pay for performance is the tried and true principle. If we can learn how to do it better, if we can get our managers to have those difficult discussions and make those difficult decisions, our organization's bottom line will definitely improve. So the research clearly shows there's a benefit to pay for performance. One final question, is a robust performance management program essential to the success of a pay for performance program? I believe that in most cases a robust program or process for assessing employees is fairly important. And the reason I say that is I made a comment earlier about adults being uncomfortable assessing other adults. We would love to have a management team where everyone, all the managers, take ownership for their compensation decisions. They take ownership for their pay for performance discussions. But the reality is, is they're looking to HR to compensation for help and assistance. They're not comfortable with it, and that's okay. The acknowledgement that they're not comfortable with it, I think, is a great way to overcome that barrier. I believe that in general, if we can help, we being HR can help organizations by giving them the tools, providing them the training, helping them calibrate. Another important point, where the organization is comparing ratings across divisions, across departments, that has shown to be an extremely effective way, especially for organizations that are running amok in terms of their performance ratings, where 60, 70 percent of the organization is above expectations, it makes it very difficult to allocate awards in those situations. So those calibration meetings can be very effective to kind of bring everybody back to the real world. And once your ratings are calibrated, it's much easier and much more effective to be able to allocate rewards to where your high performers can receive significantly higher amounts. Carrie, thanks for your wonderful insight today. For WorkSpan TV, I'm Allison Avalos. And I'm Carrie Hsu.