Hot Topic May

When money talks

Should companies pay for potential or performance? Which is more important? Senior HR leaders share with Lee Xieli how their organisation measures both elements in their compensation structure.

Anderson Lim

Director for office of human resources

Republic Polytechnic

It is important to pay for both potential and performance. Usually, staff with great potential will have better promotion prospects than those with average potential. However, all performing staff should be rewarded adequately and differentiated.

If there are two people in the same job with same responsibility, we have to test them to see who has the higher potential because we cannot give them the same job within the organisation. So we give them more responsibility and more stretch goals, meaning let them do different things. And if they do well, that means they have performed well this year and they will get a better performance grading. This allows you to reward them more [based on their performance].

Continuous performance is one measure of potential. If he or she is able to continuously perform at a good level, it is one good indicator of potential but potential is more than that. Potential are things like “Are you able to see things beyond the initial? Are you able to project problems, future obstacles and take the necessary steps now so that in years to come, your company and your department will not be affected by those threats? Are you able to gel and get your team to work well together? Are you able to achieve results beyond those of your immediate tasks? Are you projecting good initiative, doing things better than people and have an attitude of always learning? Those indicators show potential of doing bigger things. 

 

Natalie Lee

Director of people and culture

Vestas Technology R&D

Both potential and performance are equally important. In Vestas, high potentials must have consistent high performances because we want to develop a pool of employees who can effectively operate across the organisation and drive the global development of the organisation.

Similarly, we identify and develop high potential employees because we want them to contribute to the covering of needs for current and future leaders, leading specialists and project leaders. We also want to ensure a fast and focused development of employees with the ability, engagement and aspiration for a fast-track career development, along with supporting and developing those who act as culturally strong role models. This also helps us to retain talented employees with a high performance, desire and potential to grow.

The 3Gs model of “Getting Ahead, Getting Along and Getting Things Done” is used to assess our employees with the characteristics to be a leader. Some characteristics of the 3Gs models include ability to show open mindedness, courage, drive and personal leadership (Getting Ahead), ability to show empathy, integrity, communication skills and teamwork (Getting Along) and ability to show decisiveness, persistency, conflict resolving and motivational skills (Getting Things Done).

So how do you measure both elements? We measure performance from the top down approach through group Key Performance Indicators (KPIs), business unit KPIs, site KPIs and eventually the individual KPIs. Potential levels are measured through a 9-box grid where performance levels are concurrently measured with potential ranging from fulfilled, growth and advancement in order to assess the employees.

 

Billy Tan

Regional HR director

Alliance One International Asia

When it comes to compensation structure based on potential and performance, this would be discussed with the key people involved, the HR and the regional managing directors. It is a big exercise because we look at everybody, especially the expats. We also engage the services of a consultant to help us provide an objective view to it.

But you see, compensation policies will only be good for about 80% of the employee population. There will always be 20% who would not be happy. In those cases, we have to look at it on an exception basis or see how we can manage the expectations of those 20%. This is true for most companies.

It is very important to link pay to performance. If everyone is paid the same regardless of his contribution, very soon everyone would be performing at minimal [level]. The employee would be looking at his or her neighbour and say they are not doing anything much and yet they are getting the same pay. It is natural. Everybody likes to compare.

To avoid that, you need to set performance goals for a person to achieve. If he meets those performance challenges then he can be rewarded with good bonuses at the end of the year.