The Way We Manage Employee Performance Is Changing, but Is the Way We Look at Pay Changing with It? About the Authors
Total Page：16
File Type：pdf, Size：1020Kb
The way we manage employee performance is changing, but is the way we look at pay changing with it? About the authors Flavia D’Alo is a Partner in Human Katharine Stanley is a Manager in Capital Consulting at Deloitte, Human Capital Consulting at Deloitte where she specialises in Human with over 10 years experience in the Resources Transformation and Human Capital space in both corporate Technology (‘HRT&T’). Flavia has 30 HR and advisory roles. Katharine has years experience in the leadership of recently advised organisations from the business transformation programs resource, technology, consumer goods across multiple industries including and health industries. Katharine holds minerals and mining, technology, retail, a Master of Business Administration and medical. Flavia is passionate about and is passionate about working with integrated management systems and clients to define and realise their HR process redesign, people strategy, Transformation and Technology goals. business leadership, organisation cultural development, organisational Andrew Or is a Senior Consultant in change management and enterprise Human Capital at Deloitte with over 5 technology systems, which lead years of experience in HR operations businesses to high performance. and Human Capital consulting including HR transformation, performance Andrew Hill is a Partner in Human management implementation, strategic Capital Consulting at Deloitte and workforce planning and organisation leads the HRT&T team, reporting design. Andrew has worked in a directly to the head of Human Capital number of industries including Australia and is matrixed into Deloitte’s government (federal and state), higher Global Centre for HRT&T expertise education, consumer goods, oil and representing the Australian practice. gas, mining and not for profit. Andrew is an expert in best practice HR transformation and shared services Elzaan Pienaar is a Consultant in and has recently advised organisations Human Capital Consulting at Deloitte from the resource, consumer goods with experience in Talent Management and construction industries. Andrew and HR Transformation programs specialises in HR transformation, HR from strategy development to design strategy, shared services design, HR and execution. Elzaan has experience systems implementation and business across 3 main industry sectors process re-engineering. including public sector (federal and state), financial services and health sciences. Elzaan has specific expertise in helping organisations re-design their approach to Performance Management and has successfully supported a number of organisations through implementation. Contents The need to effectively link performance and pay 1 Considerations 1. Performance reviews should not be linked to base salary increases and different approaches to base salary delivery should be considered 3 2. Variable incentives and a flexible remuneration framework can be used to reward and drive performance 6 Conclusion: Employee impact 9 Acknowledgements 11 End notes 12 1 The need to effectively link performance and pay Companies are increasingly implementing new approaches to drive employee performance and contribution as traditional performance frameworks are falling short. The link between pay and performance is often used to improve performance but what happens when traditional performance approaches are challenged? 2 Background into new approaches to performance frameworks Recently a number of companies (including Deloitte) have reinvented their performance framework after realising that traditional approaches are not driving the desired employee performance and contribution outcomes1. Overall, there is a greater emphasis on transparency, simplicity and continuity in the process focussing on the employee experience and the ‘how’ (i.e. employee contributions, impact and behaviours) of achieving organisational outcomes. Shifts we are seeing in performance frameworks From To Cumbersome annual performance Frequent, quality performance ratings and calibration that do not conversations between managers accurately measure performance and all team members Conversations based on a single performance grade that often Coaching conversations focused on has minimal bearing on future individual development employee performance High HR compliance efforts to Conversations focused on personal facilitate the performance review growth and alignment of employee process objectives to business growth Reactive performance feedback More frequent and ‘live’ feedback that has minimal impact on and coaching during achievement employee performance and development of organisational outcomes Some organisations are even reducing 2. Variable incentives and a flexible the use of ratings2 (a major input to remuneration framework can be used to determining employee remuneration) reward and drive performance and are de-coupling the link between performance conversations and financial Scope reward for performance and individual This paper seeks to provide a leading point contributions. of view on effectively linking employee performance and remuneration by So, we know that performance frameworks providing key considerations on where to are changing, but are we changing our start. This paper does not seek to provide approach to remuneration with it? technical remuneration advice or guidelines on how to effectively link performance With this in mind, what are the ratings to remuneration (i.e. X% increase if considerations to effectively link best rating is ‘meets expectations’). practice performance frameworks and remuneration to drive workforce productivity? We seek to unpack this question through 2 schools of thought: 1. Performance reviews should not be linked to base salary increases and different approaches to base salary delivery should be considered 3 Performance reviews should not be linked to base salary increases and different approaches to base salary delivery should be considered Why do we say this? Research suggests that even if employees were able to decide how much they should earn, they would probably not enjoy their job more. In addition, the association between salary and job satisfaction is very weak and research indicates that base salary does not increase employee performance after a certain point in time. Despite this, most organisations still persist with utilising base salary as a means to drive organisational performance. 4 Where can you start? Why do organisations still do this? We Define and clearly communicate Align employees’ salary to the right believe organisations persist with this what base salary consists of to market indications to eliminate mechanism for a variety of reasons ensure common understanding and base salary as basis of concern including the following: transparency We can’t forget that base salary • Culture: Current salary arrangements Establishing or adjusting base salary is a ‘hygiene factor’ and should are rooted in the organisation and any can be challenging as it must consider compensate employees fairly for their change will risk demotivating and / or a vast array of factors including role work efforts. It is important that salary disruption to employees requirements, industry and market activity. bands are mapped to relevant and • Implementation cost: Changes to all Base salary should be clearly defined and accurate market data points, outliers employee salary arrangements can articulated in remuneration strategies and are refused and employees are paid result in a large time and monetary cost other relevant communication to promote within 10% of your organisation’s transparency, fairness and trust. target salary band point (e.g. 70-75 • Perception: Further to the associated percentile). Consider increasing implementation cost, organisations We define base salary as the amount of employees’ base salary annually in line often perceive the resources and effort money that an employee receives for a with CPI changes and market activity. required to implement these changes role prior to tax implications, additional as too high and do not achieve the bonuses, commissions and deductions. required result However, different approaches to base salary delivery should be considered to effectively drive organisational performance. Do not increase base salary to reward Separate performance and contribution or encourage additional performance discussions from remuneration contribution as it is ineffective over time discussions with employees Continuously increasing base salary to Research has shown that discussion reward additional contributions from around remuneration often triggers an employees will not only be ineffective emotive response which negates open but will also be unsustainable for the and honest discussion. Instead, separate organisation. Base salary should therefore these discussions and have a conversation not increase based on performance or around supporting employees to reach promised to be increased if trying to retain their potential. Talent review discussions employees who hand in their resignation should shift towards a greater focus as the association between salary and job on enabling employee growth and satisfaction is weak. development rather than focussing on the monetary reward. Ensure managers understand and have the right information to support your remuneration strategy and to have effective conversations. 5 Publish base salary bands to promote Offer employees bespoke contracts transparency and fairness and base salary conditions Publishing base salary bands