Pay for Performance - A Key to Recovery
Given the policies, endless array of employment related amendments, acts and executive orders tumbling out of Washington, as well as those waiting in the wings to be passed (EFCA & HFA), it seems corporate America will crumble under the increasing costs of doing business. Some think that the very gift horse providing the tax base - the growth engine of America - will be shot! However, there is growing evidence that non-union corporate America is doing everything possible to pick themselves up by the boot straps, move away from entitlement and continue building employee commitment, accountability and performance based rewards.
The recently published WorldatWork Salary Budget Survey demonstrates that pay for performance is alive in American business. A companion article in WorldatWork's Workspan magazine says, "organizations continue to focus on programs that tie performance to pay." (Avalos & Cohen, 2009, p. 29) The article quotes "though many organizations are experiencing limited cash flow, rewarding those who are driving business results is key." (Avalos & Cohen, 2009, p. 29) And even more compelling, those organizations using variable pay plans in 2009 remains at 80 percent of those surveyed. Further more, although reports about the health and recovery of the economy are uneven and mixed, "approximately half of the companies that froze salaries and hiring in the past year now plan to unfreeze them in the next six months." (Watson Wyatt Survey, October, 2009)
PORTICO believes that pay for performance is part of the overall solution to move the U. S. economy out of the current recession, pave the path to recovery, and whole-heartedly reject entitlement and egalitarianism. By now, you may have read that the average base compensation increase in the United States in 2010 is projected to be 2.8%. (WorldatWork) For organizations that do plan on granting base compensation increases in 2010, some will aimlessly give across the board increases and continue to piddle away their precious payroll dollars. Others will focus their funds on pizza parties, hats and mugs to fuel reckless recognition programs. Yet other organizations will attempt to create merit increase systems that are void of solid performance metrics and pay differentials based on performance results.
While there are many U. S. companies that cannot grant base compensation increases in 2010, let alone an average of 2.8%, many will still continue to use pizza and parties to prop up or reposition their broken reward programs in an effort to bolster employee engagement in tough times. When scrutinized and tallied up, often, the price tag of these reward programs approximate a figure that it would take to fund a true pay for performance initiative. Regardless of whether you have .5%, 1.0%, 2.0% or 2.8% of base payroll dollars to fund stellar performance results, our advice is to channel these resources into the beginnings of a true pay for performance program. Make no mistake, pay for performance is no panacea for building employee engagement and clearly is no small feat. There are many moving parts to a true merit pay system, including a total rewards strategy, culture preparation, leadership support, performance metrics, coaching and feedback, rewards commensurate with performance and other components. (See Fuehrer Factor and article on "The Power of Performance Management, November, 2009)
More and more employees are understanding that their results and those of their team members, must count in keeping their companies afloat. At the same time, it remains to be seen IF the economy is going to up-tick in 2010. But whenever it does up-tick, (and it always has) there will be a mass exodus of top performers from companies that have not paid proper attention to engaging and rewarding their high performers.
Perhaps one of the only good things that will evolve from the current economic turbulence is a diminished entitlement mentality. These recessionary times have created an unexpected opportunity to move toward accountability, results and pay for performance. As a recent article stated, "For organizations that want to end compensation entitlement and move to true pay for performance, a business downturn is the best time to act - not just for the duration of the downturn, but also for the long term." (Hellerman & Kochanski, 2009, p. 2) Now is the time to reposition the employment exchange, to move away from entitlement, incorporate accountability for results and cement your ability to retain your high performers.
References:
Avalos, A., & Cohen, K. 2009. Salary budget increases - Just wishful thinking? Workspan, WorldatWork. September, 2009.
Fuehrer Factor: Fuehrer, V., 2009. The power of performance management.
Hellerman, M., & Kochanski, J. Reducing the sense of entitlement: pay for performance for 2010 - and beyond. August, 2009. SHRM, Compensation & Benefits Newsletter,
Watson Wyatt's Survey: Effect of the Economic Crisis on HR Programs - Update: October 2009.
Victoria Fuehrer, MBA, CCP, SPHR
President – PORTICO Consulting, LLC
612-414-7629
