What are the most critical topics in human capital management
that should be on your radar in 2013? Topic #2: Pay for Performance.
Yesterday Lois Melbourne wrote a terrific blog post on the benefits of establishing an agile HR philosophy. She notes that “by viewing our talent management processes as a system of interrelated parts, much like software or supply chain development, we can begin to identify weaknesses in the system that need to be fixed.”
Shaking my head up and down in support, I immediately think of an employee-focused pay for performance strategy as a prime example. As I noted in an earlier blog post, pay for performance is not exactly a new concept these days. However, what is novel is the strategy of focusing this policy almost exclusively on the betterment of the employee, rather than the organization. This strategy focuses on motivating and rewarding the workforce, and letting achievement of corporate goals be a natural result of a happy workforce. An employee-focused pay for performance plan is one that engages the employee for feedback, measures their compensation plans against peers in their industry, and ensures that goals and objectives are made clear to all relevant parties.
Here are a few different steps that can make pay for performance agile and differentiating.
Keep performance and compensation separate, yet together. Performance management and compensation management have two different goals. The former’s is to keep track of an employee’s strengths and weaknesses, successes and failures. The latter’s is to ensure that people are compensated correctly based on mathematical formulas and data. Together, they ensure that compensation is in line with results, fairly and honestly. They also empower the employee with information and explanation, removing surprises and improving overall morale.
Keep the lines of communication with employees open. Politics is perception. If an employee feels like their compensation is without a fair justification, morale falls quickly. HR managers and other stakeholders would be wise to solicit as much feedback as possible to manage expectations.
Perpetual state of testing. OK, I admit it… I stole this bullet point title from Lois’ blog. However, she is absolutely right. HR managers and other executives involved with compensation need to constantly ensure that formulas are constantly benchmarked against industry standards. Similarly, performance managers must review the accuracy of their evaluation data to ensure it is comprehensive and a fair representation of successes and failures.
Ensure buy-in before the process begins. At the beginning of each cycle, ensure employees are aware of the relationship between performance and compensation, and the benefits to them of such a scenario. This will ensure employees know that how they perform (as well as other factors) will directly affect the compensation process.
As noted in Lois’ blog post, an agile HR strategy is an important ingredient to competitive and fair management processes. We need to look no further for proof when we look at the relationship between compensation and performance, two management processes that are valuable both on their own and working together.
>> Stay tuned to the Peoplefluent Blog as we address 11 other critical topics in human capital management. You can also access the replay of our recent webcast “13 for 2013: Key HCM Topics” here.