Posts Tagged ‘Reward System’
Reward Systems
Three Steps To an Effective Reward System
A Reward System is the most basic communication from Management to its employees and Management need to ensure that what the Reward System is actually saying is what they had wanted to say.
To create an effective reward system it is best to follow three steps:
- Define the required performance
- Convert values, mission statements and strategies into tangible goals
- Convert goals into actions
- Devise comprehensive metrics
- Tracks actions and assessed progress towards goals
- Create financial and nonfinancial reward systems
- Meet employees needs
- Reinforces metrics
- Aligned with company goals
Step 1: Define The Required Performance
One very effective tool to make visions,missions, goals, and priorities actionable is the bull’s-eye exercise, so named because it is depicted as a three-ringed target as shown. In the outer ring go the goals and initiatives you are trying to make actionable eg customer satisfaction. In the inner-most ring goes the output of the exercise–that is, descriptions of specific employee behaviours that are deemed necessary to achieve the desired outcomes.- Testing Employee Buy-In to Top Mission/Vision/Principles and how realistic and real they are.
- Creates More Effective Delegation
- Lays the groundwork for more effective organizational processes
Step 2: Devise Comprehensive Metrics
Do not make major changes to the Reward system without first upgrading the metrics to ensure that performance can be measured. The strength of the reward system depends greatly on the competence of the metrics.
“Management gets what it inspects, not what it expects”
If something isn’t measured, you can’t give people feedback about it and they can’t improve.
In designing a competent measurement system there are major tradeoffs:
- Control vs Development
- Performance data can be used for both control and development but not at the same time.
- Rating vs Ranking
- Rating systems compare people (or organizations) to articulated standards
- Pro: Does not hinder teamwork. Gives a company wide view of performance.
- Con: Can enable shirking of evaluation decisions and over time all personnel can end up as high performers according to the rating system whereas in reality they are not.
- Ranking systems compare people not to expressed standards but to other people.
- Pro: Forces Managers to make tough evaluation decisions
- Con: Penalises managers who have overall better staff than another dept. It can discourage teamwork.
Sales Metrics may well be a mixture of rating and ranking. For instance all sales may be on a rating system but also there is a ranking system which offers a prize for top three sales people at the yearly sales management event.
Step 3: Create Reward Systems That Work
“Rewards are anything that increases the probability of a future response”.
Consider money and feedback. Both are good rewards. Offering money to do something increases the likelihood that it will be done. Feedback enables people to systematically improve their performance. But whilst the high performers get most of the money rewards, the low performers tend to get most of the feedback. The key point is that some of the powerful rewards that can be offered are non financial but are often overlooked or discounted by management.
These are also known as intrinsic and extrinsic rewards. Intrinsic rewards produce more intangible forms of recognition such as personal satisfaction, a sense of accomplishment, personal control over one’s work and feeling that one’s work is appreciated. Extrinsic rewards are external, tangible forms of recognition such as bonuses, pay rises, promotion and sales prizes.
A Reward System could and should include Financial (Extrinsic) and Non Financial (Intrinsic) Rewards.
- Extrinsic – Financial Rewards
- Pro: Most people will go to great lengths to get more money
- Con:
- Commodity. Only a limited amount of money to go round. Tricky to administer.
- Does not promote engagement.
- Uncontrollability. Almost all performance measures contain some level of uncontrollability i.e. outside the control of the team member.
- Interdependency. Most outcomes are the result of work by many people. How much was done by the team member.
- May stunt creativity and team work for complex tasks.
- Extrinsic – Prestige Rewards
- Increase stature of employees in eyes of colleagues and others
- Pro: Cost effective. Not a commodity. Can bind employee to company
- Con: May not be valued by all. Scarcity of Rewards.
- Intrinsic – Job Content Rewards
- Include Clear Feedback, Increased Responsibility, New Challenge, Trust, Recognition, Autonomy, Opportunities to participate in Decision Making, Grow Professionally and do interesting and important work, working in a positive respectful environment, working with talented motivated people, working in a company with a clear vision, working for a good boss.
- Pro: Unlimited availability. Engages team.
- Con: Not much. Can sometimes be taken for granted.
A good reward system has key components:
- Availability & Eligibility
- Eligibility is intentional unavailability
- May only be available to certain categories of people. Motivates people to climb the organizational ladder
- Visibility
- Must be visible at a minimum to those who receive rewards
- Contingent on Performance
- Rewards should be based more on performance than on seniority, titles or organizational membership.
- Timeliness
- To be maximally effective, rewards should be received soon after the reward-worthy action has occurred.
- Reversibility
- Ideally should be able to take back a reward you shouldn’t have given
- Or at a minimum the recipient should not get it again
- Dangers of rewards being taken for granted
