The Performance Management & Reward Concept
The concept is simple. Set clear goals for the business, define how employees contribute to the achievement of those goals, set them clear performance targets, monitor their performance regularly, & reward them for their achievements.
Employees have a clear purpose, they are focussed on the right tasks & energised, and are rewarded for their direct contribution to improved business performance. Everyone wins.
Adoption & Benefits
The vast majority of Australian businesses support the concept. A 2006 study showed that 96% of Australian businesses had a performance management system.
The improvements in business performance are tangible. Studies show a direct correlation between effective performance management & reward systems and increased revenue & profits, and higher levels of customer satisfaction and employee motivation.
Long story short – Having an effective performance management & reward system is absolutely fundamental for improving business performance. There is no more effective system for aligning the organisation to its performance improvement goals and driving them through to achievement.
The Problem
Despite the high adoption rates and clear benefits, performance management & reward systems are underutilised & misused by Australian businesses, and hated by Australian employees.
The statistics don’t lie:
- 6% of Australian CEOs think their performance management system drives improved business performance.
- 50% of Australian employees think their performance management system is ineffective.
- 50% of the surveyed employees did not complete a performance review.
- Of the 50% that did complete a performance review, 48% considered the process to be biased, flawed and ineffective.
Source: http://insights.unimelb.edu.au/vol15/04_brown.html
Why do so many businesses get this wrong? We frequently see businesses make the following 3 mistakes.
Goals are set too late
Too many organisations spend the first quarter defining their annual performance improvement goals.
It’s too late.
Setting goals in Q1 drives employees nuts! The time it takes the leadership team to finalise the goals eats into the time employees have to deliver them. Employees are effectively asked to deliver 12 months work in a 9 month timeframe. This kills employee motivation as the goals are perceived to be unrealistic and unattainable.
Goals aren’t set at the right level
The organisation’s performance improvement goals are generally sent out to the entire business in a catch all email and…
No one makes the effort to break them down any further.
Unfortunately a business wide goal to “deliver a $15m operating cost reduction” is not specific to an employee, nor can it be directly achieved by an employee. Cue feelings of confusion and anxiousness. When employees do not understand what is specifically expected of them how can they deliver? Everything stalls.
At the end of the year the leadership team are left scratching their heads as to why their teams failed to deliver.
Reward isn’t reflective of performance
High performing employees hate performance management & reward systems. A high performing employee tends to produce 2x – 10x the output of a low performing employee. They should receive a reward that is relative to their superior performance.
Reward systems stop this from happening. Most work on the 10/80/10 theory. 10% of your employees should be rated “needs improvement”, 80% “good”, 10% “excellent”. Performance scores are reverse engineered to make the results fit the model. Employees who were rated as “excellent” are pulled back to the pack. Despite all the extra effort, hours, and dedication throughout the year the bonus they receive is only marginally higher. Why would you go to the effort of delivering superior performance, if you can earn marginally less and go home on time every day?
Top performing employees lose their drive and question their commitment to the organisation.
The Fundamentals for Success
Get these three fundamental elements right!
Set goals early
Don’t waste the first 3 months of the year. Set your business performance goals for the coming year in Q4. Roll these goals out to employees before they break for Christmas. Obtain commitment from your leadership team to hold individual performance objective discussions in January.
Everyone is aligned and clear on what needs to be delivered from month #1.
Set goals at the right level
Employees must understand how they can specifically contribute to the achievement of business performance goals. Business wide goals must be broken down and defined at the employee level.
“Contribute to the $15m operating cost reduction target by reducing stationary expenses by $15k” is a specific, achievable goal that the employee can deliver.
Expectations are clear, employees become goal focussed and motivated to achieve.
Reward performance
Reward your top performing employees with bonuses that are reflective of their contribution to performance improvement. Ensure your top performing employees feel appreciated, maintain their commitment to the organisation, and continue to go above and beyond to deliver excellent performance.
About 3 Ps in Profit
Our Vision: Enabling more Australian small & medium businesses to succeed & thrive through genuine partnerships that deliver performance improvement & growth.
Our Mission: Improving & growing Australian small & medium businesses by focusing on the three fundamental elements that drive performance; planning & alignment, processes & systems, and people.
Want to find our more? We would welcome the opportunity to discuss your performance improvement objectives and how we can help you achieve them.