I guess that before I give you more of my thoughts on this, you need to think about what you’re trying to achieve. If by relating performance to pay, you are trying to motivate your people to work harder, then you should first understand whether they’re driven by money! If they are, and you can really measure their performance, then stop reading this post and carry on as you are!
Still reading? Good! What I’m about to say may be a little controversial, but bear with me. Improving the performance of all of the individuals in your company might not improve the performance of the company! You can have everyone working as hard and as they possibly could, using whatever means you can think of. Unless they’re working together, all pulling in the right direction, then they may as well not bother. Putting it that way, may make more sense to you. W. Edwards Deming wrote in “Out of the Crisis” ‘A new book explains how to “Motivate your people to work at top speed!” Beat horses and they will run faster – for a while.” This book was first published in 1982, so it is still a surprise to me to still see performance and reward being used to “improve company performance”.
Instead of focussing on the performance of the people, I encourage you to look at what it is they actually do. This might be uncomfortable for both you and them to start with, but if you can manage to convince them that you’re looking at what they do, to be able to see how you can help them to make their job easier or less frustrating, then you’ve taken the first step on the business improvement ladder. More about that will appear in another post.
Back to the relationship between performance and reward. If you already link performance to pay rises and bonus payments, you need to make some changes as soon as you can. If your company pays bonuses based on performance, find a way of relating them to the performance of the company; larger organisations could split this down to the performance of business units, but this also has risks. Whatever you do, make sure that the performance measures are seen to be fair. The biggest risk is that business units may compete against each other, rather than working together for the good of the business. Keep it simple, focus on the bottom line; the best-case-scenario is that everyone in the business receives the same bonus, either in percentage terms, or in monetary value.
What to do about the performance of individuals? Use your Leaders to lead! Train the leaders at all levels in the business to understand what leadership is, and how it differs from management. Give them the time to coach their teams. Get the teams working together. Creating the right environment, from the front-line to the boardroom, with the right leaders in place is the only way forward.
I’ll leave you with this thought. If you take the time to look at the processes that operate in your business, and listen to the people involved in those processes, then you’re heading in the right direction to move your business forward.
Go on, take the first step!