Leaders Integrating Performance and Rewards

The author spent several years in a start-up company that developed software to implement variable pay and pay-for-performance systems. While it is relatively simple to conceptualize the principles of an integrated performance reward system, these systems are difficult and complex to implement with regard to information technology. Kouzes and Posner (1997, p. 276) listed three criteria for integrating performance-reward systems: (1) Make certain that people know what’s expected of them; (2) Provide feedback about contributors’ performance; and (3) Reward only those who meet the standards. Consider that it sometimes can be difficult to implement these elements.

In order to make certain that people know what is expected of them, the leader and the organization must have a clear idea of what they should be doing and communicate that message clearly – with sales personnel, this can be relatively straightforward in terms of compensating based upon closing sales. However, with other team members the goals and how to achieve them are far less straightforward, leaving some doubt about the reasonableness of the goal and the measure being applied.

Providing feedback about contributors’ performance is another challenging but important concern. Leaders must give clear and fair feedback on the shortest time schedule possible. The author has been in organizations that give formal performance and salary reviews every year–this process has little positive value and some negative value. The feedback as well as the reward for the outcome must be far closer to the actual performance. Suppose that the team member does something that requires instructive feedback on Day 22 and then the performance review is conducted on Day 365–the team member could have been working on improvement throughout the year–the team member may be hostile and defensive about receiving feedback so far separated from the action. Leaders need to give informal feedback (good and bad) on at least a weekly basis, if not sooner.

Rewarding only those who meet the standards is also fraught with challenges. There is often the need to motivate the individual and the team, instead of just the individual. Rewarding the team can sometimes run counter to the need to reward the individual for their contribution. Recall the Prisoner’s Dilemma scenario: if one works in a team, one expects to be rewarded as a team to receive an appropriate but not maximum payoff. However, if one works as an individual, the payoff is greater to each person. This edgy conflict and symbiosis between group and individual rewards is difficult to manage fairly. Consider also that the information technology challenges of rewarding multiple teams financially for achieving goals can get very expensive unless the entire reward is diluted among the teams. Finally, the blending of intrinsic and extrinsic rewards is not a simple process.

Reference

Kouzes, J.M., & Posner, B.Z. (1997). The leadership challenge (2nd ed.). San Francisco, CA: Jossey-Bass.