This article first appeared in DNA India on October 5th, 2017
Organisations have multiple ways to reward their employees. Typically, compensation and benefits are the primary means for organisations to reward employees based on their performance. Most organisations I know of tend to have semi-annual or annual performance reviews. The goal during these reviews is to “sort” employees into what are known as the ‘9-box’ models. These models enable managers to rate their employees across performance and potential. Those with higher performance and potential ratings are earmarked for promotions and greater benefits.
There are two aspects to consider here – The first is in the way employees are separated based on performance, and the second is in the mechanism designed for compensation. As I mentioned, the norm is to have semi-annual and/or annual performance reviews. However, companies like Accenture, GE, and Adobe to name a few have moved away from these annual reviews to more continuous means such as frequent check-ins and continuous feedback and performance appraisal platforms. This in itself is a significant departure from what has been an accepted practice for the past 50 years or so. There is also an Indian organisation I know of, that is attempting to do away with performance appraisals in toto and only ranking employees based on their potential. This, to me, is quite extraordinary and I, for one, am waiting to see how this plays out.
The second aspect deals with how employees are compensated based on their ratings. Most organisations use annual salary increments as a way to reward their employees’ performance. Some on the other hand, provide uniform annual increments which they count as “inflationary adjustments” and then use bonuses to reward employees who have done really well. Still, others use a combination of the above as a means to motivate their employees.
What of the company that has done away with performance appraisals? How will they reward their employees? They have come up with a unique way of rewarding employees by tying bonuses to team performance rather than individual performances. Thus, if the overall business unit does well, all members in the business unit get bonuses. However, there are no bonuses linked to individual performance.
The question that went through my mind was “wouldn’t this demotivate the high-performers”? Apparently, what this company has observed is that taking away bonuses linked to individual performance has taken away a lot of the competitiveness among employees. As a result, they are able to collaborate towards fulfilling team or BU level goals, thereby increasing both their own and the company’s efficiency.
Among all the different compensation and benefit-schemes I have come across, this one is the most remarkably different in a philosophical sense. Whether the gains that the managers are seeing in the short term can be persisted with in the long term, is anyone’s guess.
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