Taking From Peter To Pay Paul

Most practitioners in Human Resources and business management tend to agree with the concept of pay for performance – that increases in pay should be linked in some manner to an employee’s performance on the job. However, I find it valid to cast skepticism over some organizations’  implementation and administration of internal policies and practices tied to this concept.

Sometimes walking the talk can be a challenge.

When 90% or more of an employee population receives an annual salary review and corresponding increase, one has to question whether it’s job performance or tenure (“it’s been twelve months, where’s my pay raise?”) that’s the catalyst for the increases.

If you are one who advocates a pay-for-performance culture, how does your organization deal with a pay delivery system that in application may have conflicting practices?

  • Narrowing the focus of reward efforts by recognizing your better performers with markedly larger increases than their lower performing colleagues, or
  • Broadening reward efforts by granting increases for everyone who “did a good job” for the past 12 months.

But can you do both? I don’t think so. You won’t have enough money. The “feel good, pay everyone” approach is self-limiting, because you won’t be allowed to spend more than the budget you’ve been given. Discretionary funds are limited, so you can’t simply shrug your shoulders and complain that you need more money. You’ll have to work with what you have. To do that you’ll have to take a stand – by deciding the who, why and how much.   Because money-laden reinforcements will not be coming to save your promises.

The Decision

Most managers want to be liked by their staff, so they want to be able to dole out rewards as broadly as possible – but perhaps for reasons that upper management wouldn’t agree with.  Some examples: to foster the team environment, to keep employees from quitting, to stifle promotional transfers, to avoid looking bad (why are employees leaving a particular manager?) and to avoid adding to their own workload (recruiting, training, time lost, picking up the slack) when someone is being replaced.

At the end of the day, the manager’s agenda might really be about themselves.

Think about it; when there’s precious little money available to reward employees, does your organization still believe that it’s important to pay more for higher levels of performance? That better performers deserve more? To accomplish such a feat would require taking money from one employee and giving it to another. There’s no other way.

While managers would agree with the principle that better performing employees should be paid more, when reward monies are fixed (and you can’t simply blow the budget) how do they balance their conflicting pressures?

Do they:

  • Accurately and objectively assess performance?
  • Recognize higher levels of performance by paying extra?
  • Penalize those who haven’t performed by granting lower increases, or by passing them over?
  • Give average increases for average performance?
  •  Take monies saved from lower performers and give it to those who perform at higher levels
  •  Blame management that there isn’t enough money for everyone?
  • Take from Peter to pay Paul?

Taking from Peter

As managers are pressured to make pay increase decisions, they should focus on their higher-performing employees. Those are the ones who are the most marketable, who will always have the option of leaving and are the most vulnerable to competitor poaching. And as to the rest?  Average performers are much easier to replace, and their departure would be much less disruptive to business operations.

Sound harsh? Does it seem as though this tactic isn’t fair to everyone?  It does appear that way, but an effective manager has to discriminate rewards in favor of those who contribute the most. With only a set amount of monies available, it’s their responsibility to spend the resources they have as effectively and efficiently as possible in order to generate the greatest return for the organization. Because if the better employees do start to leave, the organization will be in a world of hurt much more painful, more financially disruptive than if it had been the lesser lower performers who had left.

Besides, whoever said that doing it the right way was the easy way?  Managers like the money, the title, and the status that they receive for being called a Manager, but from time to time they’re called upon to earn their position.  Sometimes they have to make decisions that aren’t easy, that won’t please everyone, but are still the right decisions for the organization.

However, managers are often reluctant to actually manage performance assessment and rewards delivery for their staff, even though that responsibility is a critical element of managing employees. They’d rather pass the buck, blame HR or do whatever they can to avoid making hard decisions that directly impact their employees.

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The next move is yours. Are you going to manage, or will you simply play it safe and go through the motions? Will you make a stand or pass the buck? Will you make the decisions that a manager needs to make, or throw out some lame excuse like “I’d like to give you more money, but HR won’t let me.”

It’s time for you to manage.  Perhaps it’s time for you to take from Peter to pay Paul.

Chuck Csizmar is the Founder & Principal of CMC Compensation Group,an independent global compensation consulting firm whose expertise lies in helping companies manage the effective and efficient utilization of financial rewards for their employees. He also maintains a popular blog on compensation at his website www.cmccompensationgroup.com.

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