Organizations are Dissatisfied with Pay for Performance

Friday, February 21, 2014

 

Pay for Performance, simple, employees are rewarded for their level of job performance.  The better the employee’s job performance the better the employee’s reward.  Those who perform are rewarded, those who do not perform, are not rewarded.  How could any organization be unhappy with such as arrangement?  As reported in Mercer's 2013 Pay for Performance Survey, 45%, of employers reported that Pay for Performance was not performing as expected in their organization and needed to be repaired.

 

According to the survey, there is a disconnection between Pay for Performance as a reward philosophy and measuring the results of that performance and its alignment with organizational needs.  Thus while the majority of employers support and believe in Pay for Performance less than half measure the effectiveness of their programs.  This begs the question, if organizations are not measuring the efficiency of their programs, how do they know they are working?  And the answer is, of course, they do not know if Pay for Performance is driving the desired organizational outcomes.  Bob is a great sales manager and we reward Bob for his performance, we just do not know for a fact that Bob’s efforts are in alignment with the organization’s desired sales goals and objectives.

 

TowersWatson reported in “How to Drive Sustainable Employee Engagement”, on April 3, 2013 that organizations are only limited by those behaviors which they can “observe, measure, and communicate.”  Thus it goes to reason that employers whose objective is to increase sales must observe that behavior which leads to higher sales, measure those sales which are desirable, i.e., profitable, and communicate the desired behaviors to its sales force.  Then, when those behaviors yield the desired results, the organization must reward the employee.

 

In an effort to obtain higher levels of performance, most employers want to engage their employee’s “discretionary effort” level of performance.  Engaging employees to go the extra mile is of no value and may even be counter-productive unless that effort is consistent with the desired direction(s) of the organization.  Increased sales may even be harmful to an organization’s success unless those sales are to the right customers.  Customers, who fail to pay, pay late, have credit issues or return otherwise perfectly good product, may not be the “right” or profitable customers for an organization.  Without some measure or measures of sales, revenue, net income, account balances, account aging, returns, and other measures, employers lack the information to know if their sales force is selling the right products to the right customers at the right price.

 

As organizations continue recover from the Great Recession, greater importance is placed on measuring both organizational and employee performance at all levels.  With employers still reluctant to rehire scores of workers, businesses look for ways to maximum the productivity of existing employees.  Thus measurement of employee performance becomes critical to determine if and when new workers are needed.