When I was at university I was one of those students who cringe every time they hear the tutor mention the word “group assignment” because I knew there were always a couple of students that would do the bare minimum and I would be doing most of the group’s work. Regardless of the individual efforts, everyone in the group would be entitled the same marks. This undifferentiated way to reward people didn’t seem fair then as much as it does not feel fair now in the workplace.
Luckily I’ve noticed that there has been a gradual social change since. Back then, if you spoke to people about fairness they would talk about treating everyone the same. Today if you ask the same question you will hear them talking about wanting their rewards to reflect their individual efforts and not that of their colleagues or team. In this context, the concept of pay differentiation is becoming increasingly important.
In a very competitive talent market, organisations need and want to hold on to their superior performers but we see time and time again that superior performers get frustrated and leave because of perceptions of lack of differentiation.
Pay differentiation matters more today than it used to. Most organisations in Singapore are competing in mature markets, face global competition and are under pressure to increase productivity and this is driving a growing number of organisations to introduce pay schemes that are linked to employee performance in the belief that differentiated pay will help improve both individual and overall business performance. In the work we do with our clients we see evidence that connecting pay and performance is a driver of workforce engagement and consequently, productivity but the problem is that many organisations struggle to make the connection because of wider issues around performance.
The simple truth is that many organisations struggle to define what competent performance is. If you don’t know what normal performance is, it’s impossible to have a definition for high or poor performance. And even for companies that have a definition in place, measuring performance can prove difficult because performance encompasses much more than clear financial or other quantitative targets. It includes assessing behaviours, team work, creativity, brand values and many other elements that potentially have a high degree of subjectivity. Managers need to be fully trained in the process of measuring performance so they are consistent and objective or they risk weakening the system; leading employees to questioning the credibility of the performance assessments.
When it comes to differentiating performance there are three performance management fundamentals that organisations need to address:
- Provide clarity: specify expectations at the individual level and how these expectations link to overall business outcomes. People can’t perform well if they don’t know what it means to perform well or if they don’t understand how their performance will make a difference to the bigger scheme of things.
- Hold the difficult conversations: the focus should be on raising managerial capability to have an honest dialogue about performance. Employees need to understand that there are consequences of not meeting expectations. If managers settle for mediocrity simply to avoid the difficult performance conversations, the result is a message that isn’t strong enough to ensure the highest levels of productivity.
- Commitment and supportive environment: in productive organisations people understand they will be rewarded for great performance. Create a culture that rewards and celebrates success. If organisations don’t do this employees won’t see the need to perform well.
The reality is that I still see organisations that reinforce an entitlement mentality by providing across the board annual increases or bonuses that are not tied to performance, or by developing very flat incentive pay out curves that provide little motivation for employees to go above and beyond. This often leaves a very small part of the pay review budget to reward high performers. In a true pay for performance environment, performance needs to impact pay. Organisations need to differentiate meaningfully and do more than just pay lip service to the concept of differentiating rewards.
What measures is your organisation using to differentiate pay and performance? Share your views below.