Take rewards and recognition back to basics

While planning your reward strategies, don't forget the integral role of recognition, says Chew Han Guan, learning and development manager at an aerospace company.

The bell curve - or normal distribution - has been the main model used for rewards and recognition strategies. In this model, it's assumed the majority of employees will be performing at an averagely acceptable level, and they will accordingly get ‘averagely’ rewarded for their efforts.

But is having the majority of employees performing at an average level good enough for organisations?

Recently, management leaders have suggested some groups might fit better into what is called a “power law” distribution. In this model, contrasting with the bell curve, the idea of an average performer becomes meaningless. This is because a small percentage of super performers contribute to a disproportionately high level of business results – people like Steve Jobs, Jack Ma and Warren Buffet come to mind – with the rest spreading over a broad spectrum of performance levels.

Ideally, companies want as many good performers as possible, but therein lies the perennial reward dilemma. The pool of rewards is fixed and limited, usually based on the company’s profitability, and if you have more good performers than rewards, you could possibly burst the pot.

So, ironically, although companies want more high performers, they are rewarding employees averagely, based on the bell curve distribution.

I would like to suggest another perspective of looking at this. Although the tangible rewards are limited, the intangible rewards – like recognition – are not. For instance, although performance rating and appraisals are closely tied to the reward mechanism, I feel there is still some room to manoeuvre in the distribution of rewards to put emphasis in the recognition space.

As global employee disengagement levels reach new heights, there is no better a time to work out a system that could effectively engage the workforce with minimum or no impact to the bottom-line.

When a company has more high performers than usual, instead of vexing over who to moderate down, the company should be happy it has a larger than normal pool of talented employees who can help the company sustain its market competitiveness. How should these employees be rewarded?

A simple case study

My suggestion is rather simple - it is about paying people what they are worth and recognising them for that. Really, it's about getting back to basics.

Suppose there was a company of 10 employees with a simple rating system of only A, B and C. If there were five A graders, and five B graders, the bell curve would probably call for three out of the five As to be downgraded to B, and two out of the five Bs to be downgraded to C. This would give an average rating of B across the company, with two top performers and two bottom performers.

If the total bonus pool is $10,000 with a company policy to differentiate different rating grades by 20%, the top two A graders would get $1,193, the six B graders $993, and the last two C graders $828. The tricky part comes where the supervisors need to relay a message to those downgraded employees that their performance was not really up to expectations. If handled badly, this could result in a snowballing sleuth of negative externalities.

But what if we let the rating stay as they were truly justified and pay the top five A graders $1,100, and the five B graders, $900 instead?

This works as well, meeting the company’s policy requirements, but the difference is this approach gives the supervisors a possibly fairer and more positive message to deliver to the employees.

To put things in perspective, there was no added financial cost to let the original rating stay, because it was only a matter of mathematical manipulation to redistribute the bonus pool from the same total sum. But the key benefit is that the level of recognition moved up tremendously. Instead of disappointing five downgraded employees, you motivated them.

Essentially, it gives employees the assurance that as long as they perform, their efforts will be recognised and it will not be compromised due to some technicality concerns. It also sends the message that the company has a strong performance based culture of reward and recognition and motivates employees to strive to be in the high performance band.

Caveats

It should be noted and emphasised here that this is not an advocacy for leniency in the performance rating process. If the employee performed at C grade, that is what the employee will get. If the distribution of rating follows the bell curve, so be it. But in cases where after moderation and internal benchmarking, the supervisors still find they have to split hairs to differentiate the performance between certain employees, it might be better not to do so, as subjectivity may have a heavy sway.

C&B professionals may also face other constraints. For instance, a high performance rating might have implications on career progression, which ultimately sets a cap on the number of A graders.

In such cases, a compromised approach may be taken. Although the quota for A grades is fixed, there may be flexibility in the distribution of the B and C rating. There can even be no C grade at all if everyone performed up to expectations.

Conclusion

As new challenges emerge in the workplace, it might be beneficial for us to re-look at our ways of doing things and to adapt and evolve our thinking. Otherwise, companies that are unable or fail to adapt fast enough, could get left behind.

This article is written on a personal capacity and does not express the views and opinions of my employer.