Dare to be Different?

I would like to remind those of you based in the UK and with responsibility for, or interest in, reward about my forthcoming session on reward innovation:

WHEN: Tuesday 15th, 3.30-5.30pm.

WHERE: Microsoft, 2 Kingdom Street, London, W2 6BD.

WHO: You, us and lots of other Senior Reward executives from BT, RBS, John Lewis, DHL, Microsoft and more

It is quite understandable that there has not been much innovation in the reward area. Mistakes in this area have much more impact than in other areas of HR.  Employees and recruitment candidates also have ingrained expectations about the type of deal they will find.

But actually retaining an untransformed set of best practices is not not without risk either.  There is increasing evidence that the traditional ways of rewarding people need to change.

Actually the whole idea of following generic best practices is probably misdirected anyway.  There is an interesting new article on Linkedin’s Talent Blog reviewing the development of Netflix’s unconventional HR and reward practices described in its famous culture deck (no annual reviews, market based pay, unlimited vacation etc).

As the article notes, this came after 14 years of a heads-down approach where Netflix’s head of HR isolated herself inside its walls to come up with the streaming giant’s revered culture.

“During that decade-and-a-half, she wasn’t out and about chatting up human resources professionals or regularly attending talent acquisition conferences. Instead, she refused to read what other companies were doing and only attended HR conferences every two or three years. Consequently, Patty says she didn’t get influenced by what others were doing. And it paid off.”

That does not mean learning about new practices is unimportant - this is after all the purpose of this event. It just means that after learning about what may be possible HR and Reward professionals need to put their heads down and focus on what is going to be important for them.

I'll be talking about how attendees can best do this as well.

I hope you will decide to book for the event and look forward to seeing you there.

Organised together with beqom: 

Happiness is the best driver for success

Our mission is to make the workforce of our customers happy. beqom drives happiness by allowing business managers to lead, align and motivate employees and partners. The beqom Total Compensation platform is used globally across all industry sectors by over 100 large companies such as Microsoft and Vodafone. It addresses all Performance and Compensation aspects such as Salary Review, Bonus, Long-Term Incentives, Commissions, Benefits, Non-cash rewards and all key drivers towards Employee Performance and Sales Performance. HR, Sales and Finance organizations leverage our platform to drive performance, retention, cost optimization and... happiness among their people. 

beqom – to make your people happy

And this is my sign-off too:

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CEB ReImagineHR - Research on Performance Management and Reward

The CEB has been running another successful ReImagineHR conference in London, including some of their client case studies and also more of their excellent research.

I think some of the most powerful insights this year focus on performance management and reward.

Performance management:

• Clearly needs to change - only 4% of HR leaders feel they are effective at accurately assessing employee performance
• According to CEB, removing ratings isn’t the way to do it and in fact despite the hype around it less than half of HR leaders are interested in doing this.
• Removing ratings reduces the amount of time managers spend on performance management together with the quality of their performance conversations and negatively impacts employee engagement.

I think the most important suggestion which I completely agree with is that HR leaders should make an informed decision about removing ratings considering both their organisation’s situation and how removing ratings will affect managers and employees.

I am personally very pleased that so many organisations are dropping reviews or ratings as it was never a process I appreciated as either appraiser or appraisee, but that’s beside the point. It really doesn’t matter whether it’s the trend or not - the only thing which matters is what is right for a particular business, and the employees who work in it.

Linked to this, it’s important to note there is never one perfect solutions - ratings helps do some things well and fails at others, no ratings does other things well but suffers different problems too. So I also agree with the CEB’s advice that when organisations do remove ratings they need to take    other appropriate actions to mitigate what may be the negative consequences.

For example to ensure that employees still have a positive perception of pay differentiations, organisations should 1. guide managers to base pay decisions on simple criteria such as performance against role in order to identify employees who should receive the highest awards; and 2. help employees understand how their contributions and the organisational context have informed their pay decision in order to demonstrate how pay decisions were made fairly.

The CEB therefore suggest bigger and easier gains can be made by focusing on other changes in performance management, e.g.:

• Provide Ongoing, Not Episodic, Performance Feedback
• Make Performance Reviews Forward Looking, Not Backward Looking
• Include Peer, Not Just Manager, Feedback in Evaluating Performance

Reward:

The other issue for many organisations is how they reward people appropriately without the crutch of performance ratings.

CEB research suggests this may not be a particularly significant issue as organisations would do better to give a few big pay increases for large differences in performance rather than lots of little increases for small differences.

I agree with this logic too though I worry about the impact of large differentials on the performance of CEB’s network contributors. That could be reduced by paying for different types of performance, for example improvements in, as well as exceptional levels of, performance.
 

But the key comes down, once again, to the power of conversations - enabling managers to use narratives rather than ratings to explain compensation decisions to employees, helping them understand the impact of their performance and contribution.


Another great set of privations and I look forward to next year’s conference.

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Positioning Reward for the Future

Positioning Reward or the Future - with my friends at beqom

November 15th at 3.30pm

Microsoft, 2 Kingdom Street, London W2 6BD

 

Registration is now open - book here.

See you there!

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• Strategy  - Talent - Engagement  - Change and OD 
• Contact me to create more value for your business
• jon [dot] ingham [at] strategic [dash] hcm [dot] com

Hot topic: Paying bonuses

There's an interesting piece in HR Magazine today questioning whether bonuses are an effective reward mechanism.

The article includes comments from Craig Newman, chief executive of Woodford Investment Management which gave up paying bonuses last year. Their conclusion was that bonuses are largely ineffective in influencing behaviours.

There are several more recent examples which relate to this too.

The Wells Fargo scandal is probably the biggest of these. And also the most stupid. If you pay people bonuses to sell bank accounts without motivating other behaviours or creating an ethical culture guess what's going to happen? People will sell more accounts. Even if their customers don't know about them.

Or actually equally powerfully there is the example of ride operators at Alton Towers being paid bonuses to minimise downtime. With understandable if terrible results.

Bonuses can work, but only if you set measures carefully and you understand how people are going or are not going to be motivated around these.

I like Peter Cheese's comments that "we need to go back to the fundamentals, starting with how we evaluate performance beyond just delivery of numbers, how we assess performance, making it clear and simple, how we recognise and encourage good performance beyond just paying more, and how we create fairer payment systems."

I'll be speaking about some of the opportunities to do this at a session with beqom and Microsoft in London on 15th November.  Come along if you can - I'll share more details with you shortly.

The beqom Total Compensation platform is used globally across all industry sectors by over 100 large companies such as Microsoft and Vodafone. It addresses all Performance and Compensation aspects such as Salary Review, Bonus, Long-Term Incentives, Commissions, Benefits, Non-cash rewards and all key drivers towards Employee Performance and Sales Performance.

HR, Sales and Finance organizations leverage the platform to drive performance, retention, cost optimization and... happiness among their people.

• Consulting   Research  Speaking  Training  Writing
• Strategy  - Talent - Engagement  - Change and OD 
• Contact me to create more value for your business
• jon [dot] ingham [at] strategic [dash] hcm [dot] com

Problems with Performance Based Pay

It was interesting hearing the speaker from AXA yesterday suggesting we need to do away with bonuses.  I tend to agree. Here are my comments on the problems with bonuses, taken from the ATD's Handbook of Talent Management, and my chapter on innovation within reward:

Despite the general shift from fixed to variable reward, there is little evidence that offering enhanced pay for higher performance has led to increased motivation or real gains in performance.  This should not have been a surprise to us.  After all, our understanding about the limited impact of reward dates back to the 1940s and 50s with research by Abraham Maslow and Frederick Herzberg but has also been reinforced and extended by more recent insights emerging from behavioural science, neuroscience and behavioural economics.  These insights increasingly suggest that there are major difficulties involved in attempting to link pay to performance.

Firstly, we know that reward is a hygiene factor rather than being a true motivator, i.e. it has little ability to motivate but if it is inappropriate or even just perceived as inappropriate it can be a powerful demotivator.  People may also end up feeling punished if they do not receive the full potential or expected payout. 

In addition, although performance based pay may work for employees working on a production line it has a particularly low impact on Peter Drucker’s knowledge workers.  The over justification effect, identified by Edward Deci,  suggests that the only thing extrinsic reward does do for these people is to reduce the intrinsic motivation that they started out with.  For example many investment bankers are less interested in high pay than the symbolic value of this payment and the way pay helps them compare their performance to their colleagues.  (You can see this very clearly if you happen to be in an investment bank when the annual bonuses are announced.)  By encouraging bankers to see reward as a proxy for their value we have encouraged them to become extrinsically motivated and have also got locked into a very expensive system for communicating their comparative worth.

Incentives will also not work, even for production line workers, if they are seen as too small and unimportant.  They will also have limited impact on those who are not materialistic and have their own value system or are just more focused on fairness and equity than they are on maximizing their own wealth.

Any impact of variable reward is also likely to be short-term so an organization may find someone will be more engaged for a short period after receiving a reward but they will very quickly return to the former level of rather lower engagement.  And the reward the person has received very quickly becomes an entitlement and therefore an even higher reward is required next time to produce the same increase in engagement.

Rewards can also encourage short-termism and reduce risk taking which can lead to a culture of compliance rather than improvement.  I have even heard it suggested that it is because reward practitioners tend to get better paid than their other talent management colleagues that we see less innovation within the reward space!

But inappropriate reward can also encourage excessive risk taking as we saw with the activities of investment bankers which triggered the recent global recession.

I also had an interesting experience working with one of the big global banks shortly after 2008 financial crash.  This firm’s CHRO put the world’s troubles down in no small part to the HR Business Partners who supported the firm’s investment bank.  She explained that when it came to the annual salary review she got no trouble at all from most HR practitioners but the HRBPs in the investment banking group would be up in arms.  Basically they had gone native and taken on the characteristics and behaviours of their client group.  This, together with their own comparatively high rewards within the HR function and profession, had stopped them seeing the dangerous consequences of the ways that the investment bankers were being paid.

Various studies have also shown that high pay, or the potential for high pay, reduces productivity and performance and that at a certain level of reward organizations no longer have to pay more to get higher performance.

Individually focused reward can also sabotage work relationships, hindering team working and collaboration.  This is important as a high proportion of work undertaken by knowledge workers (generally over half), as well as other employees, tends to be collaborative rather than individual in nature, that is performance results from the collective action of teams, networks and communities not just of the individual employees themselves.

A final issue is that trust in organizational management is declining.  For example, one of the leading global surveys on trust, the Edelman Trust Barometer, has found significant falls in trust in the last decade or so, and notes some of the greatest falls are for hierarchically based relationships and with positions of authority such as a CEO.

Linked to this, there are also concerns about the way reward programmes are implemented and whether they are applied fairly.  For example, equal pay audits have often highlighted unintended but unequal pay practices that lie behind ongoing gender pay gaps.

Lack of trust in management, and in the reward programmes executed by this management, also reduce the positive impact these sorts of schemes will have as employees apply a psychological discount in the way that they value them, focusing on what they believe they are likely to realize, rather than the full realisable pay.

Given all of this, how much value do we really derive from our performance based pay schemes?

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#EqualPayDay - David Cameron's tax returns and broader pay transparency

I'm booked on BBC World on Thursday evening (their Behind the Headlines feature at around 8.00pm BST) to talk about pay transparency.

When the interview was booked I wasn't sure how topical the agenda would be - and then wham! - Panama happened, David Cameron fudged and then published his tax returns, and suddenly it's a top of the headlines news item with many commentators asking how far the new expectation for transparency will go.

This is in the UK at least so of course it's a shame that BBC World isn't available here, but I'm sure the same type of pressures are building outside of the UK as well.  Because it's not just about Panama, it's just a signal of the new digital age.  In today's world why shouldn't we expect tax, pay etc to be shared openly and transparently when so much else is.

Plus this would be a huge enabler for better practice.  For example Glassdoor Economic Research's new survey has found that both men and women believe greater pay transparency would be one important factor in reducing the gender pay gap.

It's why it's also interesting to see Glassdoor running the equal pay roundtable with Hillary Clinton and others today.  If you're free do join in for this at 2.30pm BST today - it should be a great conversation.

Press Release

Fact Sheet: Glassdoor Gender Pay Gap Research + Salary Surveys

Event Landing Page

Reward Transformation or Timid Tinkering?

I've previously shared some of my ideas on the opportunities for innovating reward, pulled from the ATD Handbook on Talent Management.  Here's why we need this innovation: 

The emergence of talent development as a new, more evolved form of training and development reinforces the scale of transformation that has been underway within this area of talent management.

New insights from neuroscience and behavioural economics and new technologies including social, mobile and cloud are just some of the drivers leading to a new focus on creating an environment in which talent can develop.

Looking back at the focus on delivering training ten or even five years ago and comparing this to the type of activities talent developers will be undertaking in another ten years time (learning app designer, content curator,  community manager etc) it is clear this has been a revolution, not just an iterative improvement.

Other areas of talent management reviewed within this book have been through similar levels of change.

Recruitment / talent acquisition is probably the most obvious example and the shift in focus from recruitment advertising to sourcing, employer branding and external talent communities has been just as radical as the change in the talent development space.

But most other areas have or are now seeing a similarly transformational scale of change.

But what about reward (meaning the topic and activity relating to compensating and engaging people through monetary and other exchanges)?

Well, although there is a lot of talk about the new pay, as yet, there is not that much difference between the new and the old!

(I like this World at Work article on the New New Pay too.)

Also see:

• Social reward

• Social recognition

• Personalised reward

• Reward gamification

• Pay transparency

• Pay ratios

For more information:

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Social Reward

I've already posted on some of the other opportunities for innovation that I've addressed in the ATD's Talent Management Handbook.  However probably the most important of these is team based, or social reward.  This is about transferring the focus of reward from individual employees to teams and reflecting on the necessary innovation to support this change in focus.

Here are my comments from the Handbook:

Team Based Reward

One of the biggest changes underway in many organizations is a move away from hierarchies towards teams, supporting increasing needs for collaboration.  Making this shift work requires team based pay.

This is a difficult shift to make work and involves high risks for example it can increase competition between teams just as it reduces this within teams.  Supporting this, research on cases where team based reward has been used, particularly where this has involved knowledge workers, tends not to be that favourable.  However the results of team based reward will obviously depend upon how it is used and in many of the cases which have been reviewed team rewards had not been designed that smartly.  The main problem seems to be that communication has been left too late.  Garbers and Konradt’s recent meta analysis of 30 different studies of team rewards also suggests that team rewards work best for smaller teams and mixed gender teams.  It also notes the importance of distributing rewards equitably rather than just equally between team members.

The best suggestion I have heard to make team based reward work is to reward a team for the performance of the individuals and divide this reward between the individuals according to their contributions to the team.  This ensures individuals focus on collaboration not competition within the team but also that they and the whole team are focused on helping increase the individual performance of each person, avoiding any tendency towards social loafing.

An alternative is to combine team and individually based reward.  For example Whole Foods Market provides an individual base pay but further rewards are linked to team performance.  To help make this work, employees have some say about the people working in their team.

Anyway just because it is difficult should not be enough of an argument to mean that we should not try to do it.  Also the major challenges probably lie out of the reward area itself, for example in developing effective team based performance management which will be a requirement for team based pay to work, and also efective team building.

Also see:

• Social recognition

• Personalised reward

• Reward gamification

• Pay transparency

• Pay ratios

For more information:

• Consulting   Research  Speaking  Training  Writing 
• Strategy  - Talent - Engagement  - Change and OD   
• Contact me to create more value for your business  
• jon [dot] ingham [at] strategic [dash] hcm [dot] com