Business Week just came out with their 2009 Business Week 50. What was found in common amongst the year's BW 50 companies...
...a good number have developed pay-for-performance cultures. At Nucor, IntercontinentalExchange, Fastenal (FAST) (No. 19), and Expeditors International of Washington (EXPD) (No. 28), employee salaries are nothing special—and in some instances they are below average for their sectors. But each of those companies supplements miserly salaries with generous incentives based on such metrics as profits and customer satisfaction.
Companies get what they seek... Mediocrity or results.
Mediocrity - Some companies seek a "family atmosphere" where accountability is minimal and everyone gets paid the same. The net impact is high performers quickly figure out that the performance bonus they should be receiving is actually being split up amongst the "family". The result is the high performer either quits performing highly or quits and seeks employment where their performance will truly be rewarded.
Results - A "pay-for-performance" culture creates the kind of results profit-maximizing companies seek. Perform and you shall receive the performance bonus. If you are a low performer, you will starve to death. Low performers then leave for "greener pastures" - companies who pay a higher base and lower performance bonus.
I often see some combination of three significant performance bonus mistakes. The three mistakes are failures to...
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Benchmark the job and select the right talent in the first place. The wrong talent will lead to low / poor performance results.
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Create strong incentive for performance by weighting the performance bonus more than the base compensation leads to lower relative performance. Why "go the extra mile" if you already have the bulk of the compensation in your back pocket.
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Keep performance bonus compensation "pure". I often see base compensation disguised as the performance bonus. Quite often companies basically give away 50 percent or more of the performance bonus as an "automatic" rather than something that must be earned. Rational human beings come to expect the 50 percent of the performance bonus.
High-performing companies experience results that come as a result of:
- The degree the talent fits the job
- Understands what is expected of them
- Accountability leads to performance.
Now go Maximize Possibility!
Other blog posts you may be interested in:
11 Ways to Use the Recession to Recruit and Retain the Best Employees
Is Brown Nosing Encouraging a Culture of Mediocrity
2009 - Your Job is Value Creation
Does HR Really Want to Reduce Turnover?
Chris Young helps organizations Maximize Possibility through talent management, cultural transformation, and strategic intervention. Bring Chris in today!
