I am currently running a strategy and performance management programme in Indonesia and I am struck again by the rush to attach individual rewards to the achievement of performance measurement targets. This isn’t simply a South East Asian issue, although it is prevalent amongst the delegates here, as many of these issues were raised at the CIPD performance management conference I chaired in London in October.

So is this a good idea?

The fundamental question for me is “do the benefits of linking individual pay to performance (especially specific individual measures) outweigh the costs of doing so?” It is not always clear that organisations think through these issues fully, so let me just rehearse some of the benefits and some of the issues.

On the benefits side we have the belief that linking pay to performance: –

  • Makes people work harder
  • Helps the organisation to communicate what is to be achieved
  • Makes people more focused on achieving their goals
  • Rewards effort
  • Is expected in many industries

On the issues side, you will have to remember that linking pay to performance; –

  • Can reward luck not effort
  • Assumes individuals deliver performance rather than the process or team as a whole
  • Assumes you know and can reliably measure what good looks like
  • Assumes you can set appropriate targets
  • Means that in achieving the goals you reward, people could neglect the other things they need to do
  • Relies on people being motivated by money
  • Turns target setting into a negotiation with both the employer and employee retaining information to maximise their position, which can undermine learning and transparency

This may be OK for the good old fashioned manufacturing piecework situation, but for me the jury is still out for many positions where the work is professional or complex.

But what do you think? Why do you do it and does it work for your organisation?

Mike Bourne

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