Are more companies heading into performance-linked reward schemes for their employees?
Derek Massie, HR director, Asia & Middle East, Acergy
I definitely think more companies are heading into performance-linked reward schemes for their employees. The history of performance related reward can probably be traced all the way back to Taylor and then through Drucker's Management by Objectives work. For most multi- nationals, with pioneers being mainly American such as GE, performance related reward has been embedded in their HRM philosophy for a long time.
As is the norm with trends, the phenomenon has been spreading eastwards across Europe and to Asia. There are greater cultural challenges if the reward schemes are high individualistic, where a business operates in the more socialistic relationship based environment's that prevail in this part of the world. However we see increasing globalisation and consolidation in markets this approach to reward shall continue. Indeed many companies now us this methodology for not only bonus but also for a portion of the annual salary review. At a more basic level, some businesses are also keen to move more of their reward expenditure to be variable as opposed to fix to manage operating costs when results are not so strong. This approach is of course challenged when labour markets are so buoyant and wage inflation is high.
As with all people management dilemmas, the challenge is to find the correct balance between team and individual and short versus long terms goals that are to be included in the reward package.
Kok Ee Lan, senior vice president, regional human resources, TÜV SÜD Asia Pacific
Yes, more companies are heading into performance-linked reward schemes for their employees for good business reasons; this fact was also confirmed by surveys conducted recently by several HR consulting firms.
For example, a survey conducted by US-based IOMA (Institute of Management and Administration) in late 2007 to size up the 2008 compensation trend and responded by more than 600 corporate respondents, has concluded that one of the top means of managing compensation cost was to “create greater distinction between high and low performers”. This means that companies are channelling their limited fund toward their top performers, compared to the more “communal and equal” treatment of the past.
Compared to reward practices of the past – whereby older employees were often rewarded better for their long service as recognition for their loyalty, the tide has certainly turned since five years or so ago, removing the “entitlement mentality” of employees.
In fact, with increasing business cost - and with staff cost forming the largest percentage of business cost - it makes only good and viable business sense to shift the compensation pattern toward rewarding employees who demonstrate a clearer and more direct link of their contributions on business outcome. This shift is also very much fuelled by the challenges of attracting and retaining top talent.
Ideally, companies should consider the following key factors when rewarding employees: budget planned, market condition and compensation benchmarking, company’s profitability and finally a MUST = individual’s performance to ensure there is good enough performance differentiation in the company’s reward policy and practices in order to drive a high performing culture from within.
David Crook, compensation and benefits manager, Nokia Siemens Networks, Asia-Pacific
There is a general trend now towards performance-linked reward schemes for employees in most multi-national companies as well as some local companies in the region.
We've seen how shareholders judge companies based on their ability to deliver on financial performance and other goals. By the same token, it is logical to link an employee's performance to his or her set objectives as well as the company's.
I see performance-linked reward schemes or the "pay as you perform" approach bringing several benefits.
First of all, they give the employee a clear focus in achieving his or her objectives as well as the company’s. Second, they enable the company to reward performers, which is crucial to its ability to retain good staff. In these respects, performance-linked reward schemes are becoming a key tool in helping a company achieve its business or financial goals.
But there is a caveat: organisations can reap the full benefits of such schemes only if Specific, Measurable, Attainable, Realistic and Trackable (“SMART”) targets are agreed upon by both the line manager and employee. This ensures that employees have a clear vision of what they need to do, and that their goals are in sync with the company’s broader objectives."
