There is some controversy in the talent management arena about how to create and reward high performance and about the role that extrinsic motivators like money can play in creating a high performance culture.

While the majority of our clients use pay-for-performance as a component of their total rewards and recognition philosophy to create a high performance culture, a recent survey by Willis Towers Watson found that:

  • Only 20% of employers believe merit pay is effective at driving higher levels of performance
  • 26% of employers still pay bonuses to employees who fail to meet expectations

The survey also found that companies are beginning to put more weight on the strategic importance of people’s roles, their contribution to team goals and their ability to help the company succeed in the future, not just the present.

To complicate matters, authors like Dan Pink have pushed the idea that intrinsic motivators like autonomy, mastery and purpose drive real and lasting motivation, not extrinsic rewards like money.  In a similar vein, psychologists tell us that extrinsic rewards only temporarily change what people do.  They assert that rewards like bonuses, vacations and awards do not change the underlying attitudes and beliefs required for lasting and committed behavior change. Some even postulate that financial rewards can ultimately have a negative impact on intrinsic goals like personal growth and engagement.

So when you want to help your people perform at their peak and move the business strategy forward in a way that makes sense, what role should rewards play in your talent management strategy?

Base Salary
Let’s start with base salary.  We consider base salary a “ticket to play the game.”  From our perspective, base pay is a talent management hygiene factor that needs to be at a certain level to be a positive factor in ensuring a healthy organizational culture.  Similar to basic levels of employee engagement, leadership, trust, safety, ethics, character and respect, base salaries need to be good enough that they don’t demotivate or undermine performance.  But it doesn’t necessarily follow that significantly increasing a person’s base salary results in higher levels of performance.

In fact, the largest research study we could find on pay and motivation found people’s satisfaction with their salary is mostly independent of their actual salary.  But as most of us know about ourselves, money can be a powerful draw to attract and retain employees. Gallup finds that 44% of employees say they would consider taking a job with a different company for a raise of 20% or less.  As you may imagine, the higher the level of employee engagement, the less likely an employee is to leave for more money.  Correspondingly, the higher the level of dis-engagement the more likely an employee is to leave.  In fact, dis-engaged employees are almost twice as likely to leave for higher pay.  So it is not ALL about the money.

Our Advice on Base Salary: Make sure that you have a compensation plan that puts your base pay in a range that allows you to attract and retain the quality talent you need to execute your strategy in your unique marketplace.  If you find you need to “overpay” to lure and keep talent, you are probably compensating for a larger strategic or cultural issue that should be resolved with non-monetary talent management strategies.  Remember, you can buy people’s time, but not their discretionary effort, loyalty and advocacy. So if you want them to be truly engaged, find the sweet spot of base pay that does not serve as the sole motivation for people to join or stay.

Pay for Performance
Assuming your base pay is at an acceptable and healthy level to attract and retain the talent you need, the next question becomes how to best use performance-based rewards to motivate high performance.  We believe that it is a leader’s job, and the purpose of an effective talent management strategy, to create the circumstances to get the most out of their people.  And we know that rewards and recognition play a major role in shaping a work environment.

Like most talent management challenges, tying rewards to performance or performance reviews has both pros and cons.  Most of the pros relate to being able to better attract and reward those who deserve it while most cons relate to subjectivity, politics and muddying the waters with respect to career and performance development.

Our Advice on Pay for Performance: For people to strive to perform at their peak there should be, in addition to the intrinsic motivators tied to your corporate culture, a commensurate level of rewards and recognition tied to their higher performance in a way that aligns with the overall company strategy.  To get it right, make sure that your rewards and recognition create desire and motivation to perform by:

  • Providing positive feedback for desired behaviors
  • Delivering meaningful, customized and proportional rewards for higher performance
  • Distributing the greatest share of the rewards to the highest performers
  • Ensuring the rewards are timely, fair, proportionate and consistent
  • Basing them upon clear, accurate and achievable definitions of success and failure
  • Having the rewards based upon a clear performance cause and effect

Intrinsic Motivation
Once your extrinsic motivators of base pay and pay for performance are in place, you should make sure that you have created strong enough intrinsic reasons for people to stay and to perform.  If your organizational culture is devoid of meaning, you will most likely see signs of complacency, a lack of innovation, and a lack of stretch goals as people try to stay with the status quo.  To add more meaning into your culture, make sure that any intrinsic motivators are meaningful, emotionally significant, modeled by leadership and aligned with the business strategy.  Above all else, make sure your talent can answer the question, “Why is it worth it to be here and perform at a high level?”

Rewarding the behaviors that are in sync with your corporate culture and business strategy can make a huge difference. Setting the right talent management strategy to attract, develop, engage and retain top talent accounts for 29% of the difference between high and low performing organizations.

Is your rewards and recognition program helping to create high performance?

To learn more about creating a high performance culture, download How to Create a High Performance Culture White Paper.

Unfortunately, too many managers struggle to follow the management basics of effective performance management.

To add to the challenge, old school performance management processes and performance reviews are struggling to align with today’s more fast moving organizations and employees who have different expectations. For example, my old employer, Accenture, is replacing annual evaluations and rankings with more timely and personalized feedback for all employees.  The same can be said of companies like GE, Goldman Sachs, Microsoft, Morgan Stanley, Adobe and the GAP.  It is clear that both employees and managers want something better.  Our annual Best Places to Work employee engagement surveys find that less than 50 percent of employees report their managers provide relevant and valuable input, and most managers we interview find the performance review process to be a monumental waste of time.

But performance reviews are designed to do five important performance management tasks that are directly correlated to higher performance and greater levels of employee engagement:

  1. Monitor performance
  2. Create accountability
  3. Develop skills and careers
  4. Reward high performance
  5. Act upon substandard performance

While we can appreciate managers wanting to reduce administrative overhead and employees wanting a better way to receive feedback, we think that companies who ditch performance reviews will struggle across the five performance management areas listed above.  More specifically, we believe that managers will struggle to provide clear, timely and accurate performance feedback that they need to lead their teams to higher levels of performance and employee engagement.

Regardless of whether you use annual performance reviews or not, managers and employees must be able to measure progress, allocate resources and adjust strategies and tactics accordingly.  A first step in effective performance management is to make sure managers and employees can answer three questions related to the basics of basics of effective performance management:

  1. Do your team members know what you expect of them and how their performance is measured?
  2. How is excellence rewarded?
  3. How are under-performers handled?

The cartoon characters above are clearly at odds. To extract the best performance from your team there are a few basics from performance management training that must be followed:

  • Set Clear Performance Performance Expectations
    There should be no confusion about the standards of success and failure for each and every job.  To get it right, make sure that the success metrics are relevant, consistent, fair, just possible, accurate and timely.  To get this right, have people design their metrics with you.
  • Ensure Transparent Performance Measures
    Goals and success metrics for performance should be visible to all.  Transparent objectives and performance metrics increase awareness and accountability while allowing everyone to assess progress against important initiatives and learn from what is working and what is not working.
  • Establish Meaningful Rewards and Consequences Upfront
    In high performance cultures, superior performance gets superior rewards; inferior performance gets consequences.  Done right, effective rewards and consequences motivate people to move toward the things (actions, behaviors, assumptions) you want and away from things you do not want.

This last “basic” regarding negative consequences is perhaps the hardest for managers to follow when they have a poor performer on their team. It is difficult for someone who wants to be “nice” to enforce consequences and to give negative feedback. But you must learn to do so if you want to keep your high performers motivated and engaged. Be supportive and encouraging but be honest. If someone is not measuring up, they will eventually drag down the entire team. It is your responsibility to require improvement or move them on in a reasonable time period.

To learn more about effective performance management, download 3 Must-Have Ingredients of High Performing Teams for New Managers

Succession planning best practices help talent leaders know where high potential talent resides in the organization and how to best engage and retain them for when it matters most.

When it comes to succession planning, “hope” is not a talent management strategy.  The right talent to move a strategy forward rarely just appears when needed.  Succession planning best practices help to develop practical and forward thinking processes to identify, attract, develop, engage and retain top talent within the organization.

While most companies have already taken steps to begin a succession planning process for senior management positions, most agree that they do not have the “right talent ready at the right time” and enter “crisis mode” when an important leadership gap occurs.  One of the key goals of any succession planning effort should be that there is no “hiccup” in seamlessly executing the business plan, at least from a talent and employee retention perspective.

Here are five guidelines for putting a new succession planning program in place or for breathing life into your existing system.

#1: Start with the business plan.
While it seems obvious that a talent strategy should follow and align with the business strategy, many succession planning processes do not start here. Instead many organizations shortsightedly look at existing leadership roles and focus only on the potential retirement of leaders in key functions. This approach does not adequately take into account all of the key talent required to drive future business plans.

Current trends in succession planning show that organizations are creating large talent pools rather than developing only key targeted leadership replacements. For example, a company that anticipates focusing more on green energy products is creating talent pipelines two to three years in advance of the desired business results. The pipelines bring new talent and skills into the organization, as well as allow leadership development experiences before results are needed.

Once you have a solid understanding of the business strategy and plan, identify all of the critical roles required to execute the strategy over the next three to five years.  This includes key individual contributors, such as salespeople with in-depth contacts in important markets, international talent, and technical professionals who have IT or R&D skills critical to product development.

When identifying key roles, remember to consider new target markets such as new key customer segments or geographical locations described in the business plan. Focus on bringing in and developing diverse talent early—talent that knows the local customs and business practices.

Read All 5 Succession Planning Trends and Lessons.

Complacency is defined as self-satisfaction especially when accompanied by unawareness of actual dangers or deficiencies.

When it comes to safety and high performance, complacency can be dangerous. The military has a mantra that “Complacency Kills.”  They are rightfully trained to never let complacency set in due to the constant and evolving life-and-death threats they face. And the business world is littered with once great companies (especially technology companies) that failed to reach their potential like Sun Microsystems, Digital Equipment, Nortel and Nokia that many blame on leadership complacency.

While being self-satisfied doesn’t sound so bad, it is one of the top warning signs of an underperforming culture.  Being pleased when your competitive landscape and customers are constantly evolving is not a good thing if you want to stay ahead of the pack. High performing leaders ensure their teams stay on their toes and keep one step ahead.

When things are going well, it is easy for a leadership team to feel content, take the foot off the gas pedal and coast. This approach can be especially dangerous when coupled with a lack of awareness of competitive threats or industry shifts.  To avoid cultural complacency as a leader, ensure that you are always comparing yourself, your team and your company to something better.

Comparisons are powerful. We make them all the time to answer questions of how tall, how short, how fast, etc. we are compared to others. In performance terms, if we truly desire improvement, our primary comparison must create a sense of dissatisfaction with our current performance level.  For example, one of the best ways to become a better skier is to ski with better people.

As a leader, what are the warning signs that a new performance comparison is required to fight complacency?

  1. A sense of satisfaction, especially success-driven satisfaction
  2. A feeling by your team of ‘we are doing all we can’
  3. Repetition of time-worn performance behavior rather than innovating new performance behavior
  4. Push back or disbelief in the possibility of greater outcomes
  5. Protection of current status rather than advancing to new positions

Even though most leaders know that complacency is bad, most struggle with how hard and how far to push their teams to get higher performance in a healthy way.  To learn more about leading and creating a high performance culture to avoid complacency, download The Science Behind How Much Should a Leader Push to Get Higher Performance

Leaders can stimulate higher performance if they make SMART Goals SMARTER.

SMART goals have been around since managers in the 1980’s discussed the importance of objectives and the difficulty of setting them effectively.  The idea makes sense for leaders and managers to help make sure that each individual, team and the company as a whole has clear objectives that are::

  • Specific – goals clear enough and specific enough to focus your efforts
  • Measurable – goals where progress can be tracked so it is clear where you stand
  • Achievable – goals realistic and attainable enough to buy into
  • Relevant – goals that matter enough to the individual, their boss, their team and the company as a whole to strive to achieve
  • Time-bound – goals that have a deadline of when the result(s) can be achieved

SMART goals are an effective management tool that provides clarity, focus, motivation and accountability.  The best leaders, however, know that more is needed to stimulate higher and differentiated performance from their teams.

To make SMART Goals SMARTER, leaders must find the narrow performance window where a goal will have the desired effect of motivating people to perform at their peak..  For example, how a leader or manager defines “Achievable” has a major impact on team performance.  If the goal is too difficult, people will become dis-engaged; equally, if the goal is too easy, you will not motivate the maximum effort or outcome. So when it comes to setting goals, there is a performance window of “Just Possible” that makes goals more potent in driving improved performance than just being “Achievable.”

Clear and simple goals are the hallmark of a high performance culture. Without them, it is difficult to provide the direction and focus necessary to maximize performance.  An example of a clear goal is climbing to the top of Mount Everest – defined simply as “Summiting” (and ideally returning safely).  The goal is so clear that it has been reduced to one word.  Another example of a clear and simple goal is “Finding water on Mars” – a goal defined by NASA.  Their is no ambiguity regarding what the NASA team is trying to accomplish.

So remember, if you want your leaders and managers to sustain the right amount of performance pressure to drive improved performance to meet important targets, make SMART goals SMARTER by adding these four attributes to your SMART goals:

  1. Clear, Simple and Few.  There cannot be any doubt about the direction and focus of what you want people to achieve and efforts, resources and energy should not be diluted.  For big strategic goals, try not to have more than two or three goals at any one time.
  2. Understood and Believable Enough.  People must be able to articulate what they are trying to accomplish and believe that it is possible within your unique corporate culture and the market conditions in which you compete.  Do not strive for 100% perfection.  It will take too long.  You just need enough understanding and belief to move forward cohesively so you can learn and inevitably adjust along the way.
  3. Just Possible.  Different than Achievable, potent high performance goals are a bit of a stretch.  People should perceive the objectives to be challenging but within their control and just within their grasp to motivate them to push to their limits.  remember, you want the goals to stimulate the next level of performance.
  4. Meaningful, Fulfilling and Relevant.  The goals should be tied to intrinsic and extrinsic motivators proportional to the achievement of the objectives.  Ideally the goals hold personal significance and are emotionally felt by the team while being aligned with the environmental circumstances.

To learn more about creating a high performance culture, download The Three Levels of a High Performance Culture

Evaluate your Performance

Toolkits

Toolkits

Download key published insights and tools from industry experts highlighting best practices in the areas of talent, strategy and culture.

More

Health Checks

Health Checks

Want to know how you stack up against leading organizations?  Receive a complimentary benchmarking analysis courtesy of an LSA Expert.

More

Whitepapers

Whitepapers

Get up to speed on timely solutions critical to your business. Published by LSA Experts based upon client feedback and key industry trends.

More

Methodology

Methodologies

First we identify the key metrics you want to improve. Then we assemble a dedicated team of elite experts who have successfully solved similar problems with similar clients.

More

icon_expert-blog

Blogs

Stay up to do date with the latest information on how we help high growth companies align their culture and talent with strategy.

More

Case Studies

Client Case Studies

Real world consulting and training approaches from LSA projects, providing insights on how your company can outperform the competition.

More