Summer is here and the Fourth of July celebrations are just around the corner. We all know what that means: hot dogs, apple pie, fireworks, patriotism that collides with fashion and small children chasing the family pet through the yard with sparklers. The other big thing is mid-year performance reviews. Nothing says holiday party like a nice compensation bump or quarterly performance bonus based on meeting performance objectives and delivering business return. Yet while tracking ROI on performance projects is difficult, connecting it to performance bonuses can be even tougher than keeping your pre-teen from shooting bottle rockets at the dog.
According to management superstar Peter Drucker in The Information Executives Need, "Wealth creation is the allocation of scare resources, working capital and performing people ... the scarcest resources in any organization are performing people." As a general rule, everyone is in favor of better performance and getting paid more for it. Oftentimes, the simplest way to motivate people on the job is to draw a painfully clear line between daily performance and improvements in their take-home pay. Not-for-profit corporations and professional athletes not withstanding, most people get the connection between improving their performance and being paid more. But tracking that performance and connecting it to daily, monthly and quarterly activity can be quite another matter.
Many times in the rush to monitor and manage metrics, no one stops to ask who contributed, how they should be measured or how they should be compensated for their performance. For example, service level performance is being tracked for platinum customers and one of the key metrics in the service-level agreement (SLA) is on-time delivery in full, assuming that the SLA agreement is within guidelines, who should get paid? The account team? The third-party logistics provider? The manufacturing and production team? Management? This gets tricky in a hurry, especially when bonuses are allocated in the front office and the work gets done on the shop floor. In our search for the truth, we went to the Windy City to look for answers.
After a trip to Monaco to hang with CFOs last month, the only way to get back in touch with the real world is to get to Chicago for the META Group's Metamorphosis conference. There we checked in with John Van Decker who gave a presentation on business performance management and the linkage to compensation. He introduced the idea of enterprise compensation performance management or ECPM. Now nothing says improved performance like a new acronym, but the idea is that by connecting compensation across the organization with overall performance management strategy and workforce information then performance will improve.
The theory makes sense on paper, but often doesn't match organization reality because it includes the HR department. Unless you work for someone such as GE, you likely have a very limited view of the value of the HR department. HR is seen as an administrative function and a gatekeeper for the organization. As everyone knows, the quickest way not to get a new job is to apply directly to the HR department. However, HR may be the critical component to unlocking performance and effecting cultural change across the organization.
For example, we know of a company in CPG that has tied weekly bonus targets to line efficiency and trailer load in their drive to better performance. They have broken yearly performance plans into individual plant targets and even down to efficiency for each shift. They post daily reports on the shop floor indicating performance to date against targets for the week. Every day when workers arrive for their shift, they all know what performance they need to deliver on their shift to stay on target for their performance bonus. As you might expect, by making this information available to all employees on all shifts, overall plant performance has improved substantially.
As performance initiatives and strategy continue to gain momentum, it is of critical importance to consider the role of human capital management and compensation strategy in effecting organizational change. Performance management always comes back to: What's in it for me? It is critical that human capital management be given high priority in focusing on results and incenting improved performance. Internal systems and processes must support information delivery to people at all levels. Those people will perform better if they can see it on their paycheck. And as we all know, nothing says holiday fun like small children terrorizing the family pet with a sparkler. And nothing says improved performance like a little more take-home pay. Who wouldn't pay for that?
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