For Talent Management Success, How to Best Reward High Performers?

A man on the podium wins first place for best talent management

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.

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