Nobody will be shocked to hear that the Covid-19 pandemic has had a huge effect on organisations across the world. For many this has included their pay and reward process. A lot of companies have operated using a bonus scheme, e.g. if you reach your allocated targets throughout the year, we’ll give you a bonus. However last year changed things, many organisations had to shift their priorities, meaning ranking and rewarding employees took a back seat to ensuring wellbeing and productivity whilst remote working. But if all goes as planned, in 2021 organisations will start returning to some form of normality and employees will expect that their pay and reward scheme will be re-instated.
But before you simply put back in place the exact same pay and reward system you were using before the pandemic, it might be a great opportunity for your company to make some much needed improvements. In the recent 2021 Performance Management Report commission by Clear Review, 0% of HR directors said pay and ratings should be a main focus of performance management, while 46% said productivity and engagement should be the focus (read the report to find out more). So how do you shift the focus away from ratings and pay and onto productivity and engagement while still rewarding high performers? In this blog we will explore this while looking at simplification, fairness and recognition.
Simplifying performance strategy
Since the Covid-19 pandemic we’ve been approached more than ever by organisations who are looking to simplify the way they make pay and reward decisions. These organisations can see how Clear Review’s performance management software is being used to build a clear and full view of an employee’s performance over a stretch of time. Meaning when it comes time to evaluate an employee at the end of the year and decide if they are on track or not, the information managers need is already there in front of them.
Our suggestion is to keep it simple. Rather than the traditional 5 point rating scale which managers struggle to use consistently and accurately, we suggest using a simpler 3 point scale with clear, unambiguous descriptions. We recommend ‘on track’, ‘off track’ and ‘exceptional’. Those on track get the standard bonus or pay award, those off track get less or none at all, and those who are exceptional receive more than those on track. Most employees will fall into the ‘on track’ category which makes things a lot simpler when it comes to things like calibration, but this approach still enables under-performance and exceptional performance to be differentiated and recognised.
To decide which category each employee falls into managers can use the Clear Review platform, which will present them with an automated summary of their team members’ performance and development data which has been continuously collected throughout the year from check-ins, feedback and objectives. Then the system asks the manager a few targeted questions to help frame their thinking and make the appropriate decision based on the data. We call this a ‘performance snapshot’. The advantage of a performance snapshot over a traditional performance review is that it takes minutes to complete, rather than hours, and minimises bias because reward decisions are based on fact rather than opinion.
Reconsidering fitness for purpose and fairness
During the pandemic organisations have had a chance to pause, revaluate their pay and reward system, and decide if it is fair to all employees. A recent survey by the Cognizant Center found that of the 4000 C‑suite and senior executives that took part 58% want to value and pay essential workers more, and 43% want to cut high executive salaries, read more here.
What we now have is an opportunity to look at how to reward those who deserve it more fairly, and stop over rewarding those who don’t. So those who achieve ‘exceptional’ status should ideally be a small margin, like the top 10%.
Recognition, not just reward
During the last year many organisations have been struggling against the unstable economic environment, many have cut back on rewarding staff with money, but still want to let them know their work is appreciated. We all want to know our hard work is being seen, and enjoy that feeling of pride when we get congratulated on a job well done. According to research by Deloitte, employee engagement, productivity and performance are 14% higher in organizations that proactively foster recognition.
Studies show that the motivational effect of an extrinsic reward such as pay does not last long, and that only 15% of the effect of a salary increase survives longer term. Therefore you would need to frequently reward staff with ‘spot’ bonuses in order to continue to have an effect. However this then brings up arguments about consistency in these rewards being awarded, fairness in who gets them etc. So a better way to motivate your staff is by showing their achievements have been recognised by the organisation. This could be praise from their manager, a public shout out on a team call or awards given to top achievers each month or quarter. This way employees know their good work is not going unnoticed, without the need to keep rewarding them with bonuses or pay increases.
Time for a re-think?
It is key to remember that there are no hard and fast rules here, these are strange times and no one solution will fit for every organisation! But if you feel your old incentive structure isn’t working for your organisation or staff members, it’s time for a re-think. Just remember, when changes are made, to keep your staff in the loop as soon as possible. Some people may be resistant to change, but if you are clear and transparent about the changes and explain why you are implementing them it will be easier to get staff on-board. Make sure managers are having regular conversations with their employees around performance, progress and pay. It is important staff know their organisation is being honest with them, creating a trusting environment. You can download our eBook on ‘Maximizing productivity in the new normal’, and ‘How to manage pay with Continuous Performance Management’ for a more in-depth look at some of the subjects covered in this blog, and to receive updates on new content around performance management please register here.