The StrategicPay Blog would like to thank fellow Compensation Cafe blogger Darcy Dees, for her contribution of this excellent posts on incentive plans.  Thank you Darcy!

Jim Collins wrote a book entitled Good to Great that discusses the importance of having the right people in the right jobs at your company in order to be successful.
From Jim Collins's website: This book addresses a single question: Can a good company become a great company, and if so, how? Based on a five year research project comparing teams that made a leap to those that did not, Good to Great shows that greatness is not primarily a function of circumstance; but largely a matter of conscious choice and discipline. This book discusses concepts like Level 5 Leadership, First Who (first get the right people on the bus, then figure out where to drive it), and the Flywheel.

I buy into that concept, but I've never really liked his analogy of having the right people in the right seats on the bus.  Unless you're a character in Speed, bus passengers are passive participants in the bus ride; only the bus driver can make the bus go in a particular direction.  So this comparison leaves a bit to be desired because it would indicate that only one person has an impact on where the company goes.  You may ask:  What difference does the analogy make if the underlying theory is sound?  I believe that inappropriate correlations can cause skewed thinking and result in skewed decision-making.  I sometimes wonder if this analogy has been used to justify some of the excessive executive compensation packages we've seen.  If you believe only the bus driver matters, you're going to pay that driver really well.

I've always preferred the analogy of a rowing crew.  You place people in the seat that utilizes their individual strengths and everyone works together to achieve a common goal.  You must row in concert and in the same direction in order to get where you need to be.  You won't do as well if you have weakness in any seat, but there are particular seats that need a stronger performer than others.  So in business parlance, you can get by with "B" players in certain seats, as long as you have "A" players in the most important seats.

From the perspective of the rowing crew analogy, I think this is why more and more businesses have extended participation in cash incentive plans deeper into the ranks.  (Well this and the fact that it decreases the pressure on the fixed cost of base pay).  An incentive plan can make sure everyone on the "boat" understands where they're trying to get to and how to get there.  Incentives are sometimes overused and misused, which is why Dan Pink is selling so many books.  It doesn't do any good to tell someone lying at the bottom of the boat without an oar to take us someplace, line-of-sight is imperative.  But an incentive can be a powerful tool for motivating your team who are holding oars and reaching an agreed upon destination.

Incentive plans, just like analogies, usually aren't perfect.  But they both continue to be used because they can help achieve goals and improve understanding.  It is important to continually review to make sure that they are working as designed and aren't doing more harm than good.

Darcy Dees, CCP works as the Compensation Manager for Rock Bottom Restaurants, Inc., headquartered in Louisville, CO.  She has worked with RBR for nearly 10 years helping to develop many of the compensation and performance management programs the company uses today.  She spends what little free time she has hiking and reading.
The opinions expressed here are the personal opinions of Darcy Dees. Content published here is not monitored or approved by Rock Bottom Restaurants, Inc. before it is posted and does not necessarily represent the views and opinions of Rock Bottom Restaurants, Inc.

Image:  Creative Commons Photo "Tufts, Head of the Charles" by crschmdit

Note: this is an updated version of my recent Compensation Cafe Post.

Amid all of the talk about motivation and incentives in the past few months, as HR and compensation influencers, we need pay attention to what we're paying for, why we are paying it (are we getting what we think we're paying for?), and in communicating this information throughout our organizations.

In their classic book "Pay People Right," Zingheim and Schuster argue that base pay should be pay for ongoing value, not for results. Each person brings to work their unique set of education/training, skills, experiences and talents, and base pay is to compensate for use the of skills and abilities that employees bring to work every day.

Zingheim and Schuster go on to say that variable pay (typically in the form of short-term cash incentives) should be used as pay for results. Using their model, we can use base pay to pay for what I call the employee's "toolkit" (all those skills, abilities, etc.), while reserving variable pay for the actual results achieved via a combination of the employee's abilities and efforts.

Although employee efforts are a key component of achieving desired outcomes, efforts do not always equal results, and so we should separate them from each other in terms of pay and rewards.

Efforts are critical though, especially those "discretionary efforts" that we as HR and rewards professionals seek out, and thus, while we probably shouldn't pay for them per se, we certainly can recognize, applaud and occasionally even celebrate these "above and beyond" efforts.

In the book "17 Rules for Successful Companies Use to Attract and Keep Top Talent" author David Russo states ("Rule #6") "applaud effort; reward contribution" and I couldn't agree more.  Efforts are critical, and worthy of recognition and applause, but not of pay per se.

If we pay for effort alone, in the absence of tangible results, we run the risk of creating rewards confusion (especially for those who actually achieve intended results) and possibly of mis-placed rewards expectations and/or feelings of entitlement ("I busted my butt on that project...").

Of course, we need to be clear and transparent about what we pay for and why; what base pay is for, and what variable pay/incentives reward. If we don't do that, many of our pay related programmatic efforts will be waisted, because people will not understand what they are paid for and how they can improve their own personal rewards system.

Doug Sayed is principal at Applied HR Strategies, a Seattle area compensation consultancy and author of the StrategicPay Series Base Pay Toolkit, a hands-on, "do-it-yourself" (DIY) guide to developing a strategic market-based compensation program, complete with dozens of pre-built tools and templates, ready for use.

The Five Domains of High-Performance Organizations
i4cp identifies the five key areas in which High-Performance Organizations excel

Seattle, WA (January 21, 2010) - After conducting thousands of studies that cover hundreds of issues related to productivity and the workforce, one thing is clear: there is no single organizational element that is correlated with high performance. Rather, there are five.

For decades, the research team at the Institute for Corporate Productivity (i4cp) has studied what separates high-performing organizations from their lower-performing counterparts. The results of that research have consistently shown that companies that excel in the following five domains are typically high performers:
•    Strategy
•    Leadership
•    Talent
•    Culture
•    Market

In December, i4cp set out to clarify the differences between high-performing and low-performing organizations across these domains, and to determine whether certain issues or traits have increased in importance in the current economic climate. The results were interesting, if not startling. The gap between higher-performing and lower-performing organizations has widened considerably from previous studies. Based on a scale from 1 to 7, high-performance organizations scored an average of 6.03 across these domains, compared with 2.88 for low performers.

"High-performance organizations all seem to recognize that, while excelling in these five areas is critical, these domains need to work together as an integrated system," said Kevin Oakes, CEO of i4cp. "The culture should be focused on the customer and reflective of the organization's talent, which in turn feeds off the leadership, who need to be aligned with the strategy, etc. If one domain is ignored or inefficient, the system breaks down. This five-domain system also contains many important sub-domains - our members would recognize them as knowledge centers -that are just as critical to explore."

Specifically the new study found the following in each domain:

1. Strategy
High-performance organizations outscored low performers by 6.14 compared with 2.58 in the critical area of Strategy. In looking at specific areas of strength vs. weakness, it's clear that an organization's strategic approach is vitally important to high performance. The common wisdom of "walk the talk" is an indispensable ingredient in high-performance organizations. If an executive says one thing and then does another, employees draw a variety of conclusions, most of them destructive to the organization.

Executives in high-performance organizations avoid these problems by ensuring that employees are clear about the strategic plan and the company's approach to business, and by ensuring that managers behave consistently. The study shows that the single most widely cited strategic practice among high-performance organizations was, "My organization's philosophy statement is consistent with its strategy." And the strategic practice in which high performers outstrip low performers the most is "Organization-wide performance measures match the organization's strategy," followed by "Organization's strategic plan is clear and well thought out."

2. Leadership
In Leadership, the gap between high-performance and low-performance organizations was 5.96 compared with 2.47. The study found that one of the most widely agreed-on leadership-related strategies is ensuring that "Everyone is clear about the organization's performance expectations." Another important factor associated with high performance is "Making sure employees believe that their behavior affects the organization." Leaders can't do their jobs alone. They must be able to convince others of just how important their own behaviors are to the success of the whole organization.

A third factor that was strongly associated with performance was the idea that "Management promotes the person who has the best skills and knowledge to do the job." Performance tends to be higher in organizations where promotions are based on talent and merit rather than on other factors, such as organizational politics.

3. Talent
With high-performance organizations scoring 5.82 in Talent, compared with 2.73 for low performers, the gap between the two is certainly wide. High-performance organizations know that effective Talent Management moves beyond a focus on HR practices, processes and systems, to a strategic approach that is linked to business outcomes. This begins with stepping outside of HR and looking at the organization from an outside-in perspective. This entails identifying the business model components and areas that drive value, and determining what the organization needs. It enables organizations to take a holistic approach to treating employees as individuals, while managing and making decisions based on data-driven information, all of which benefit the organization as a whole.

4. Culture
The difference between high and low performers in the all-important Culture category is 5.99 compared with 2.94. Being seen as a "good place to work" is a solid indicator that an organization is a high performer in this domain. Not only is this characteristic the most widely cited by high-performance organizations, it's also the biggest differentiator from low performers. High-performance organizations are also well aware of external factors - such as customers, markets and competitors - and they are ready to take on new challenges. Another element of culture that's relatively strongly correlated with high performance is a commitment to innovation and internal fostering of creativity.

5. Market
High-performance organizations scored very high in market or customer focus (6.23) vs. lower performers (3.69). The research shows that high performance is associated with a strong emphasis on customer service, including vigorous efforts to serve customers better than anyone else in the industry. High performance is linked with the use of "Customer information as the most important factor related to developing new products and services." High-performance companies are usually organized internally around what's best for the customer, and their strategy is based on customer data.

"The study reaffirms i4cp's focus on its 44 ongoing research projects, and our discoveries to date on high-performance organizations," Oakes commented. "Throughout 2010, i4cp will be launching new iterations of its most important studies - on such topics as leadership agility, customer-focused workforces and strategy execution and alignment - to see which tactics, strategies and practices high-performance organizations are using in this economic climate."

The High-Performance Organization Survey was conducted by i4cp in December 2009. The full results of the survey are available exclusively to i4cp corporate members.

About i4cp, Inc.

i4cp is the world's largest vendor-free network of corporations focused on building and sustaining a highly productive, high-performance organization. Through a combination of peer networking, human capital research, tools and technology, we enable high performance by:
•    Revealing what high-performance organizations are doing differently
•    Identifying best and next practices for all levels of management
•    Providing the resources to show how workforce improvements have bottom-line impact
With more than 40 years of experience and the industry's largest team of human capital

Incentives have been a very hot topic on the WorldatWork community website lately, generating more comments than any topic to date. Some say they work, some say they don't, and some folks just just got downright nasty about it. 

To see my take, see my post at the Compensation Cafe.

Most HR professionals would agree that happy (or at least satisfied) employees generally make better employees overall.  They tend to complain less, show up more, and make for a better work all-around environment.  Most HR professionals would also likely agree that more satisfied employees are also generally are more engaged and better performers overall.  For these reasons alone, it's worth it to try to build and maintain a happy/satisfied workforce.

But assuming increased job satisfaction automatically leads to increased job performance is a false assumption.  Many HR professionals believe that if we can just increase job satisfaction/happiness, that this will increase job/organizational performance in the process, but this is where the relationship breaks down.  Just because more satisfied employees tend to be better performers, does not mean that increased satisfaction causes increased job performance.

In reality, the satisfaction = performance equation should be reversed. If employees are successful at work, they tend to be more happy.  They tend to feel better about themselves, their work, and are more engaged and invested in what they do.  As a manager, if you can teach and lead employees towards improved job performance, you will also end up with more satisfied and happy employees in the process, and fantastic "two-fer" to have as a manager (better performance and morale).

A recent discussion on the LinkedIn HR Executives Network and a great article on the the Street.com reminded me of this topic. I've wanted to write about it for some time, and these reminders finally got me going. 

The Street.com article started out by stating: "We've got a fundamental premise wrong. We believe that making employees satisfied will make them successful. That's not true. In fact, the relationship is reversed -- make people successful and they will be happy. Employees, at least those you want to keep, don't want to be indulged, they want to be successful." "Causality flows from success to satisfaction. We've got it backward." It then goes on to provide supporting studies and other evidence of this relationship.

So, if you want happy employees who are more engaged and less likely to become unwanted turnover, then help to make them successful, and you will be helping yourself, your organization, and your employees to be better off.

We need to stop trying to make people happy so they will perform better and/or turnover less.  Instead, help to make them successful in their jobs, and you'll get higher job performance, and several other beneficial outcomes in the process!

The StrategicPay Blog would like to thank  fellow Compensation Cafe' blogger Darcy Dees for her contribution of this excellent post.

Performance Reviews: Why Bother?

We've all seen the claims that performance reviews are (or at least should be) dead because
they don't do anything and no one likes giving or receiving them.  I have to admit that I'm
a bit old-school on this issue.  I think they're very important, and when done right, really
help.

Why are performance reviews important?  The biggest reason I still like performance reviews is because they give us a formal opportunity to celebrate success.  Good managers do this on an ongoing basis, but let's face it, not all managers are good managers.  While it is very important to say thank you and specifically praise good work as it occurs, there's also something powerful about listing all of the good work that's been done recently in one
setting.  It can really help to improve morale when someone looks at all they've accomplished.

I am a big believer in strengths-based performance management, so I think that celebrating successes should be the primary focus of the review.  Steve Roesler posted over at All Things Workplace about Peter Drucker and his thoughts on strengths-based performance management.  The following quote nicely sums up why I believe in this approach:

One should waste as little effort as possible on improving areas of low competence.  It
takes far more energy and work to improve from incompetence to mediocrity than it takes to improve from first-rate performance to excellence.  And yet most people--especially most
teachers and most organizations--concentrate on making incompetent performers into mediocre ones.  Energy, resources, and time should go instead into making a competent person into a star performer.

Steve also posted a very important caution about applying this principle as a rule that I
think must be read hand-in-hand with any discussion about strengths-based performance
management. 

I also believe that reviews are still important from a documentation standpoint.  Again, not
all managers document things as they should.  If an issue arises later, at least you'll have
something indicating that the appropriate discussions took place.

I believe the ultimate goal of performance management is to recognize, encourage, and reward employee behaviors that drive positive business results.  Performance conversations should help team members to capitalize on their strengths and manage their weaknesses.  Of course the ongoing daily conversations that supervisors have with their employees are much more effective and helpful at accomplishing this, but since those don't always occur as they should, I'm still a believer in performance reviews.

Darcy Dees works as the Compensation Manager for Rock Bottom Restaurants, Inc.,
headquartered in Louisville, CO.  She has been working in Compensation for over 5 years now and recently attained her Certified Compensation Professional (CCP) designation.  She spends what little free time she has hiking and reading.