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Why do we reward performance?

11 April, 2016

Take this simple test:

Organisations pay for performance:
a.  because it is industry practice
b.  because the employee has earned their merit increase and bonus
c.  to motivate future performance with the company
d.  to retain the best performers

If you answered ‘a – industry practice’ no one can blame you. This is the safe ground. No one ever got in trouble for following the most prevalent practice.

If you answered ‘b – the employee has earned it’ you are seeing it from the employee’s perspective, and you would therefore believe that an employee who tenders their resignation before bonuses are paid still deserves their bonus. After all, they earned it.

If you answered ‘c – to motivate future performance’ you believe money motivates, according to B.F. Skinner’s theory of behavior modification, but ignoring Herzberg’s theory that money is a de-motivator (“hygiene factor”), not a motivator. You truly see money as a reward that will reinforce desired behaviors. Those who don’t get a bonus or merit increase are being punished for lack of performance, which will motivate them to try harder. Never mind what the person’s pay is relative to market, you are betting people are focused on themselves and maybe their peers, not the market.

If you answered ‘d – to retain the best performers’, you are using pay to communicate “love” to your top people, telling them they are valuable to the company. But if the employee has tendered their resignation before getting their bonus, you would probably not pay it, because you have already failed to retain the employee, so why waste company money? But if the person is remaining with the company, you are seeking to get the employee’s compensation toward the high end of market pay to put them out of reach of other employers.

Disruptive?

You want to talk about what’s disruptive? Look at the trend that is building momentum of companies ending their use of performance ratings. They are not ‘a’ companies, following the herd. They are no longer ‘b’ companies using looking-back rating systems to compute merit raises. They are also not ‘c’ companies–if you read how these companies are now approaching pay, they are not trying to motivate with money as they are assuming people are motivated more by achievement and teamwork, etc. These companies are ‘d’ companies. They are using money as a retention tool, primarily. At least that is what I conclude having studied ten cases in some detail.

So, ask yourself. Why does your company reward performance?

If you are in Singapore, please join us this evening for Rewards Without Ratings…Really?, a networking event with panel discussion on this topic. Hope to see you there.

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