With rapidly changing dynamics in business models, structures and with the advent of new technologies and social media, organizations do grapple with the idea to revisit their reward and incentive schemes. On one hand, the traditional reward and recognition mechanisms like cash incentives, promotions, annual/quarterly performance awards, long term incentives etc are prevalent in most organizations, increasingly non-salary incentives like stock options, international trips, pat-on-the-back celebrations, and experiential events are also gradually gaining traction as some effective methods.
‘’Organizational Culture eats Strategy for Breakfast’’ – Peter Drucker
Above phrase originated by Peter Drucker is an absolute reality. Corporate history has proved that a key ingredient to ensure the success of any organization will depend on its ability to create a high performance culture and ensure its reward systems are aligned to engrain it. The other aspect which continues to be very effective is the fine balance between 1-on-1 customized rewards and team rewards.
Irrespective of the kind of reward system an organization may have, some of the important dilemma or challenges to my mind, which often need to be addressed while designing or re-designing Reward & Incentive systems are –
- Alignment of Rewards with line of sight (LoS), with Must Win Goals/performance parameters.
- Alignment/reinforcing the desired leadership behaviors in any organization.
- Deployment of the Rewards/Incentive program in an unbiased & transparent manner.
- Connect with Target group – Is the proposed Reward mechanism seen as really motivating by the employees.
- Consistent and positive messaging from the Top.
Essential 1 #Alignment with Line of Sight (LoS), with Must-Win Goals of the organization
One of the most compelling ways in which excitement can be created amongst employee groups is showing them the link to the ‘North star’ (i.e. Company Vision, Strategy, long term goal) and the importance of the role they can play in achieving the same. The alignment & communication of reward systems with these must win goals of the organization, can help clarify expectations amongst those in leadership to walk the talk, as well as bring clarity within different levels of employee groups.
Essential 2 #Alignment/Reinforcing the desired leadership behaviors in any organization
While driving a performance culture, it is imperative to focus on the WHAT (i.e. goals/KPIs) as well as the HOW (i.e. Process, methodology, behaviors) of performance. Alignment of rewards with the desired behaviors can help in positive reinforcement of the leadership behaviors expected out of each & everyone. It can also help bring out the mutual benefit which can be received on by both the individual and the organization in achieving their north star.
Essential 3 #Deployment of the Reward/Incentive system in an unbiased manner
Performance should always be measured against clear pre-defined targets and outcomes and visibility of the performance parameters being considered should be provided to all in advance. Best practices in this aspect are usually organizations where in the start of the year Reward schemes are announced with clear cut descriptions of parameters/KPIs, evaluation timelines, panels as well as terms and conditions to be eligible for the same. Exceptions made (if any) in the end should be few deserving cases only, and which clearly deserve owing to specific circumstances and are explainable (if challenged).
A common trap to be avoided is the act of rewarding all in the fear of upsetting few in the team. This should be avoided as such exceptions are not motivating to the employees at large and does not foster a pay for performance culture.
Other biases in terms of recency effect, basis perceptions or feelings, should also be avoided.
Essential 4 #Connect with Target group – Is the proposed Reward mechanism seen as really motivating by the employees
One of the most important checks, often missed, is to test and see if the relevant groups find the rewards/incentives proposed for roll-out, as exiting enough. Leaders should keep in mind that one of the primary objectives of any reward scheme is to ensure employees are motivated to take ownership to produce the results they are responsible for. Hence schemes should be meaningful enough to motivate and excite them to try and achieve or over achieve their plans. It should not result in employees getting frustrated or indifferent, if the stretch target is too much or the reward proposed is not exciting.
Essential 5 #Consistent and positive messaging from the Top
Lastly, communication, reinforcement and coaching are key to ensure the deployed rewards are well understood and remain top of mind for the teams throughout the performance year. Coaching and reinforcement messages from leaders, can also act like reminders and links to the overall ambition of the company and the important role each one can play in achieving the same. Also, it can help reinforce and drive attention to the desired behaviors, activities, motivations and rewards that will foster and strengthen the desired performance culture in the times to come.
For instance, Philips India has its annual awards called – Philips CEO awards and Performance Plus awards which are designed around their Must-WIN goals (i.e. in Innovation, LEAN practices, Business category leadership etc.) And Philips behaviors (I.e. People Leadership, Team up to Win, Customer Solutions etc.). These are announced at the beginning of the year and teams aspire to work towards winning them. Teams across all verticals at a PAN India level appear and compete for these awards and winning teams are recognized in the grand finale awards night by the Philips India Leadership team.
Hence, to conclude, while principles around designing an effective reward/incentive system remain consistent, it’s important for organizations to stay relevant with the current times and ensure they manner in which they are aligned and deployed are such that they remain relevant, motivating and can sometimes also become an important retention tool and a competitive advantage for the organization.