Differences in Performance Perceptions

As the recession pushed organizations to practice care in spending while attempting to hang on to their highest value talent, pay for performance experienced a renewal. Faced with limited resources and increased demand for efficiency, leaders appealed to their higher level performers to do more with less based on the assumption that a targeted approach would be less costly and would make sure the money benefited those most valuable to the organization.

Now, as the economy improves, organizations seem to be questioning if pay for performance actually worked. Meaning, did it actually help to retain and reward the best talent in the organization? Similarly, if they failed to implement it during the downturn, many are asking if it is too late to join those already providing performance-based rewards in order to increase competitiveness in the future.

In all fairness, the recession did not spawn pay for performance and the mixed results of its use predates this decade. However, like other crises, leaders tended to risk change when experiencing sudden or dramatic uncertainty.

Over the last several months, I have been examining some of the experiences of those that implemented pay for performance during the downturn. Although the research did not explore every facet of these programs, a simple, yet central question kept reoccurring: do leaders and employees have the same perceptions of the pay for performance programs? Based on a sample of six major organizations that completed at least three rounds of reviews in the last five years, leaders, supervisors, and employees were asked a series of questions on their perceptions of the program’s effectiveness. A few of the major findings related to the mission, understanding, and results of the program appear below:

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Approximately 75 percent of leaders felt the program accomplished its stated mission. In most cases, the stated mission involved recognizing and rewarding high performers. Slightly less supervisors agreed with the question, while a little less than a third of employees agreed. These results would not be atypical of other leadership initiatives that come from the top down. Most pay for performance programs experience a communication as well as execution gap between levels.

The next two questions focus on the communication and understanding elements of the program. Not surprisingly, leaders possessed a high level of confidence that employees understood the system, while supervisors were less confident at approximately 56 percent.

On average, about 38 percent of employees agreed that they understood the tool and how compensation related to it. Similarly, leaders and supervisors felt confident that employees not only understood the program’s tools, but also know what actions and behaviors result in a higher score and more compensation. Supervisors appear the most confident. Given their role in ensuring that employees know how to improve, this result is not surprising.

The last question addresses the outcome of the program from a process standpoint: did the right people receive the reward? Similar to the other three questions, employees feel that the intent did not match the outcome. Roughly 31 percent of employees indicated that the reward went to the biggest contributors.

Some might argue that the results point to the inadequacy or even inappropriateness of pay for performance as a method of recognition and reward. Although it could be an element in that debate, I would argue that the results point more to a lack of appropriate appreciation of the complexity of managing human performance. Like most elements of management, ensuring that results reach potential is not easy. In the next posting, I will explore some of the actions of those that were more successful with their programs.

Success with Results

Most of us as managers spend a considerable amount of time speculating and strategizing on how best to complete our team’s work in an efficient and effective manner.  Even the most experienced leaders spend considerable time examining how best to allocate resources to maximize results.  As a result, theories and advice over execution appear in almost every business book.

So, what is the big deal with execution?  Put simply, the core of the challenge relates to the gap between planning and results.  After we formulate the best outcome for the future and identify the resources necessary, discipline comes into play.  Execution is bridges planning and success.

When managers and employees discuss the challenges of execution, they typically identify components related to manager knowledge, operating environments, and human behavior.  In other words, successful execution like many business phenomenon occurs when multiple factors jointly support a favorable outcome.  For example, a recent HCS survey of 400 managers and 400 employees found three primary precursors to successful execution in the workplace:

  • Understanding the elements and their interaction – Although most of us try to manage the factors that influence outcomes, many times our understanding of how things fit together fails to reach a sufficient level to be effective.  As a result, we make decisions with imperfect information regarding resources, processes, and outcomes.  If we want to be success at execution, we must understand the components, how they interaction, and how best to allocate them.
  • Reducing conflicting interests – Human reality includes multiple interests.  As leaders as well as employees, we have multiple allegiances and strive for conflicting outcomes.  Something that is good for the team may not be good for the organization just as something that is good for us as an individual may run counter to the interests of the team and the organization.  A big part of successful execution encompasses aligning interests or determining the best way for as many levels to “win” as possible.  Multiple levels of success significantly enhance the chance that everyone places as much effort as possible behind the organization’s objectives.
  • Supporting people – When an employee feels that his or her employer cares about their well-being and personal interests, the employee strives to meet the organization’s interests.  As a core component of engagement, an employee like any human being desires to be part of something bigger than them and involved in a fulfilling relationship.  We all want to feel needed and part of something important.  If an employee feels that his or her employer would go beyond for them, then they will reciprocate.