Base compensation management rewards on team performance.

by on June 26, 2009 · 0 Comment POSTED IN: HR Info Center

In compensation management, rewarding solo performance usually doesn’t optimize for the company

In many cases, what we find is it’s not an individual that is successful, because if we base compensation management solely on individuals, what happens is people have a huge tendency to optimize their own performance, often at the detriment of the organization as a whole.

Sales sell everything they could sell. Now, if manufacturing can’t make it, that’s manufacturing’s fault.

Instead, we need to figure out how to link a team based performance into individual compensation management rewards because if you look at the organization, it’s really the organization as a whole that gets rewarded. So, focus the rewards in compensation management based on the team as opposed to individuals.

You’ll often find when you do team based rewards in your compensation management plan, the teams will weed out individuals that aren’t pulling their weight, because everybody will be able to see who’s doing what. And you’ll be surprised that the intrinsic motivation of using a team based measure in terms of what’s out there.

Create positive peer pressure
This is another example of using a league table as a compensation management tool. A building product distributor similar to the Lowe’s and Home Depot, really looked at their branch performance and compensation management. And their goal with looking at overall metric was the return on sales objective, of what are we trying to do?

Now, the corporate average with a 13% return on sales, so, they would go out and measure return on sales and they would put each branch into two different leagues.

The qualifier league on the bottom of the league chart was for any branch that was not hitting the corporate average, was not hitting 13% return on sales. Those managers who we wanted to make sure they were focused on profitability. For people that the branches that have proved they can hit that and be profitable, be above the corporate average, they were bumped up to a premier league.

Now, the premier league got a second measure. In addition to looking at return on sales percentage, we want to make sure how profitable they were. We also want to look at growth and profit dollars.

If you just look at them, a single measure like return on sales percentage, if a premier league branch was at 15% return on sales, it had an opportunity to take some business that would generate 14% on sales, if they only had that single measure, the 14% actually would pull down their overall average, so it will be diluted of what they’re trying to do.

You’ve got 14% return on sales from a corporate projective is good profit dollars. So, the qualifier league really kicked in to focus on growth in profit dollars as well as return on sales.

Premier league also had the distinction, in addition to being listed and featured in the premier league. It ranked in the league table. They also sent 13 red roses to the significant others of anybody at premier league.

We often find situations of a little peer pressure coming from the home front there to make sure those red roses kept coming on a monthly basis.

So, create, again, a team based approach but some positive peer pressure in compensation management is good to keep everybody moving forward.

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