Car Importer Implements Performance Related Rewards
Performance Related Rewards often fail to deliver on their promise; Individuals feel that the rewards do not match genuine performance, and the organization fails to see a return on its investment. This case was different!
The challenge was to introduce a system that addressed a number of classic challenges:
- tackling the issue of known variations in rating standards by appraisers
- working within a budget that could only be fixed at the end of the performance year
- acknowledging the various performance levels that may be achieved by different divisions
- emphasizing the importance of excellent performance
- producing sufficient differentiation between high and low awards to justify having any differentiation
- managing broad salary bands.
A process and system was put in place that did the following:
- individuals were rated during appraisal on individual behaviors, competencies, four measures of achievement for each goal and overall goal achievement.
- appraisal ratings were standardized by appraiser and department, and weighted in terms of the WHAT and HOW, varying depending on level in the organization), to produce a performance index for each person on a 100 point scale (i.e. dramatically reducing the effect of perceived rating biases).
- at the end of the year, the available reward budget was allocated to each division as a result of a board level review of divisional performance against divisional goals.
- a pay-for-performance model used the standardized individual performance indices and the divisional budget to apportion the budget, accelerating the impact of above average performance. An award distribution graph advised division heads of the resulting differential between top and bottom awards. Some flexibility was allowed.
- the resulting awards were split into salary increments and one-off bonuses based on the individuals position in her/his salary band and length of time in that band.
- all computations and modeling were supported by readily accessible and easy to use technology.
The result was:
- awards that realistically reflected individual performance
- sufficient differentiation to ensure impact from the scheme
- absolute budgetary control
- progressive shift of pay budget from base salary to split between base salary and variable element
- a system that individuals.
