Achieving fair financial and non-financial rewards
By Derek Stockley.
Derek Stockley provides training, learning and performance management consulting services from his base in Melbourne, Victoria, Australia. Derek Stockley conducts one day leadership courses in Melbourne, Sydney, Brisbane, Perth or London.
Good performance reward systems are needed
Employee motivation and performance management depend on good systems that offer both financial and non-financial rewards (non-monetary rewards). This performance management article applies to all organisations.
Constant change and high expectations are taking their toll in some organisations, as well as in industry and government generally. Sometimes this is shown in employee turnover. Sometimes it is hidden because of job insecurity.
Many employees seek other employment. Many are also seeking more balance in their life. Many are disengaged from their workplace.
Rewards and remuneration must be scrutinised. Employee motivation and performance are critical. Non-monetary rewards can be as important as monetary rewards.
In some organisations, a multitude of different salary and pay arrangements exist. It is time to bring these different systems into a new framework. Employees at all levels need to have confidence in the salary administration system. Employees want the rewards to be shared fairly and equitably. If they are not, dissatisfaction can cause severe morale and performance problems.
If they haven't done so already, leading organisations will need to establish an improved salary administration structure.
It is possible to develop a simple structure that overcomes the difficulties of the past, yet is simple enough for everyone in the organisation to understand. This structure can be tied to a completely new performance management approach, including better performance appraisal mechanisms.
Some industry's remuneration systems have been dominated by the industrial relations system. Enterprise bargaining and local area work agreements, individual performance based contracts, and the effect of competition on organisational structures, have had a big impact.
A good rewards and remuneration system ensures that each person receives appropriate financial and nonfinancial recognition to account for the personal contribution they are making and the overall value of their position to the organisation.
Creating and maintaining an organisational structure and culture that facilitates both employee and organisational performance.
Recognising and rewarding individual and team performance, financially and otherwise, in relation to the overall contribution made.
Implementing compensation systems that fairly treat and recognise all employees, regardless of their level within the organisation. This is the equity issue. It involves matching remuneration with the contribution made, particularly where job requirements can change rapidly.
The best performance appraisal system in the world will not work if it is linked to a rewards and remuneration system that employees do not trust or support. Importantly, the system has to reward good performance, not bad performance. Getting the balance right can be very difficult.
A motivated employee will achieve a great deal. A demotivated employee will be slow, prone to error and not likely to achieve.
Motivation influences performance. It also suggests that the 'lack of', 'promise of', or receipt of either financial or nonfinancial rewards may also influence motivation. A feedback loop between motivation and performance exists, with each potentially impacting the other.
Remuneration is a component of both financial and nonfinancial reward; financially, in terms of cash and benefits received; nonfinancially in terms of recognition, status and esteem, e.g. the status of full private use of a motor vehicle.
Job evaluation is a process to determine the contribution of a position to an organisation. It needs to be seen by both the employee and organisation as fair and equitable. Good salary administration requires that employees should receive financial recognition for the contribution that they make, and that positions of equal value should be entitled to equal compensation. If organisations handle this incorrectly, or manipulate it in some way, the impact on the employee is significant.
Past pay systems often paid little attention to incentives. It is only in recent years that some systems have provided for differentiation based on performance.The concept of fair incentives should be on the agenda.
An integrated system is required such as the following diagram represents.
Perception is the reality. If the current system is not working as intended, then the organisation has a real problem.
Some key questions:
Does the documentation give a full, comprehensive description of each position?
Is the evaluation system used soundly based and rigorously applied?
Is consideration given to market competitiveness in setting the remuneration range?
Is the performance appraisal system well designed and accepted by all employees?
Is the review process conducted fairly and within agreed time limits? As well as checking goal achievement, does the review reconsider the job and changes that may have occurred?
Are non-financial rewards considered along with financial rewards?
The system should not be bureaucratic, but it has to be perceived as fair. It also has to be actually administered fairly.
Where do you rate your system on a scale of 1 to 10?
1 Employees are showing their total disenchantment by leaving as quickly as they can. Morale and motivation are non-existent.
2 Employees are unhappy and grumble frequently about the non-existence of a remuneration system. They openly talk about the problems instead of getting on with their work.
3 Employees are unhappy and comment frequently about the remuneration system that is supposed to be in place but doesn't work. However, a work ethic exists and they do some work.
4 Employees believe that 'management' controls and manipulates the system. They continue on regardless, but they do not like it.
5 Employees are aware of a remuneration system but do not see it working for them. It causes some dissatisfaction.
6 Employees believe the remuneration system only works for 'management'.
7 Some employees believe the remuneration system is working, others believe it could be better targeted to their particular situation.
8 A comprehensive system is in place. Position value and remuneration is fairly evaluated and most are well compensated. Areas for improvement are recognising individual and team contributions fairly. The system is reviewed regularly.
9 A comprehensive system is in place. Position value and remuneration is fairly evaluated and nearly all are well compensated. Individual and team contributions are recognised. Higher achievement will come from better implementation.
10 Everyone from the CEO down believes that the remuneration system is working well and being equitably administered. Individual and team contributions are recognised and rewarded accordingly. Although some would like more pay, no one is unhappy with the system. They are motivated and productive.
A rating below 7 indicates that this year may be the year to work on reward systems.
Motivation and reward are discussed further in the Motivation and financial and non-financial rewards article. The free article discusses the link between motivation and remuneration, including financial and non-financial rewards.
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Rewards management is a key part of the performance management consultancy provided by Derek Stockley, see: Performance Management Consulting Services.
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This page was last modified on 28 May 2013.