The 1980's business culture in the USA and internationally
put a considerable emphasis on personal reward on the basis that highly
motivated individuals could transform organizations and societies. The extreme
example in film was Gordon Gekko in Wall Street stating that greed was good.
The 90's, however, have seen companies traumatized and bankrupted by the
inappropriate use of remuneration as a motivator. Yet major corporate successes
have been built on reward based remuneration systems. Phones4U recently and
Allied Dunbar in the financial services market is an earlier example.
The notorious Barings Bank had individual traders on bonuses
in the millions yet in the long term these motivated individuals were not
fulfilling the company's objectives. Moreover even when an individual's reward
system is based on entirely appropriate performance indicators, resulting in
the organization’s success and he or she is rewarded, there may still be
problems arising from the large differential between salaries of senior people
and those of middle management. A payment system that depresses or demotivates
10 people for every one it motivates may not be the best for the organization.
Wise organizations are therefore trying to reward and
motivate all staff so that staff act energetically to further the corporation’s
interests both short and long term and feel they have been treated fairly.
However there must be properly in place the link between the items on which
they are being rewarded and the actions they are able to take to influence the
desired outcome.
A wise organization accepts that:
• It is reasonable for the individual manager to act in his
or her own interests.
• Managers work for people not organizations and want to
please the superiors closest to them, or failing that, their peer group.
• Managers want to achieve and will be attracted to those
tasks at which they know they can succeed, usually favoring the short term at
the expense of the long term.
The clear implication is that an organization should lay
some groundwork before relying on a remuneration structure to change
performance and behavior. In other words the management and organization system
must be in balance with the remuneration system.
There are 5 major pre-conditions
to the installation of an effective reward structure.
1. Measurement: If you do nit measure it you won it get it.
There are various measurement systems of which Balanced Scorecard, which sets
multiple objectives and is used by Tesco, is perhaps the best known.
2. Monitoring: If the performance measures are not monitored
properly or only monitored in a review at the year end, it can give the manager
signals that they donít really matter or, worse still, that failure is
acceptable providing all the managers fail together.
3. Control of the tools for the job: The organization must
ensure that the individual is not over dependent on factors outside his control
to achieve the performance measures set out (this is the “how” part of the
equation).
4. Consistency: Ensuring that short term organizational
factors don’t over-influence managers or drive them from their real objective.
The organization must also ensure that its own design (be it bureaucratic or
loose) is appropriate to what is being asked of managers.
5. Reward and strategy in line: An organization’s achieving
a clear strategy is not an event that will take place in the future; it is a
journey. A remuneration system can be put into an organization even when it has
a relatively muddled strategy providing that organizational and management
disputes are resolved by reference to strategy and the balanced score card.
Only then will there be pressure on the organization to refine its strategy,
structure and remuneration systems.
Based on these 5 pre conditions, there is a checklist of 10
factors that the effective remuneration and reward structure must achieve:
1. Support the business strategy
2. Encourage the desired behavior
3. Reward relevant performance
4. Be fair
5. Be substantial
6. Be tax efficient
7. Be timely (The reward must take place close to the
achievement)
8. Incorporate non-financial rewards (Recognition can be as
important as cash)
9. Be firm (A bonus lost through missing target should not
be recoverable whereas a salary increase should only be delayed until target is
reached)
10. Be crystal clear
