Monday, June 10, 2013

Rewarding Core Performers

My two-week break from blogging has been eventful. First, Victorio Milian published an interview about me. I was honored that he asked me to participate in his "HR Interview" series, and I am flattered by the encouraging and positive responses from HR professionals who have followed Victorio's series.

image of a bar graph

Second, I've been attending a compensation and benefits course. One of the topics that the class discussed was how compensation and benefits can be used to motivate (and discourage) employees, and one of the assignments for the course asked students to find a compensation program/policy that motivated employees. While I was performing some research on the subject, I found a fantastic article in the Harvard Business Review by Thomas Steenburgh and Michael Ahearne on the subject of motivating salespeople. I read through it and thought, "This is a pretty great idea, and this idea could be used for non-sales employees that have quantifiable measures to meet (such as quality scores, parts per minute/hour, or call handle time)."

Three Categories of Employees

To begin, Steenburgh and Ahearne divided sales employees into three categories:
  • Over achievers, or "stars," consistently exceed their goals.
  • Core performers consistently meet their goals, sometimes these employees exceed their goals, and a large portion of most companies' workforces are core performers.
  • Under achievers, or "laggards," consistently fall short of their goals, and sometimes meet their goals.

The Problem with Incentives

The problem that Steenburgh & Ahearne found with incentive programs is that these programs rewarded over achievers, failed to reward or motivate core performers, and ignored under achievers altogether. What this means is that most incentive programs tend to have the opposite effect on the majority of a company's workforce. Why is this? Let's consider the following example:
Picture of multi-colored stars
"Stars" by westy CC By 2.0
A widget manufacturer expects its production workers to assemble 3,000 widgets per month (an average of 100 per day). The average over achiever within the company assembles 3,750 widgets a month (an average of 125 per day), the average core performer assembles 3,150 widgets per month (an average of 105 per day), and the average under achiever assembles 2,550 widgets a month (an average of 85 a day). Traditionally the over achiever receives some sort of recognition for her/his achievement, the core performer receives no recognition for assembling 150 extra widgets, and the under achiever receives a write-up.

I ask of you, what does this type of reward system achieve? Is it really motivating core performers and under achievers to perform better, or is it merely encouraging over achievers to continue producing more? According to Steenburgh & Ahearne, the latter is true because most core performers feel unappreciated and feel that the standards set by the overachievers are unattainable.

Multi-Level Rewards

Steenburgh & Ahearne found that a way to satisfy both the over achievers and core performers was to offer non-cash rewards (prizes) for different levels of achievement. Going back to my previous example of the widget manufacturer, let's investigate how we could build a multi-level incentive program that would recognize both the over achievers and core performers.
What the above image demonstrates is that there are different prizes for each level of achievement.
  • In order to be considered for the first-level prize, workers must assemble at least 3,150 widgets.
  • To be considered for the second-level prize, workers must assemble at least 3,450 widgets.
  • Finally, be considered for the top-level prize, workers must assemble at least 3,750 widgets. 
In companies that used this rewards structure, Steenburgh & Ahearne found that core performers actually achieved the second- and third-level goals. However, the key to this structure's success is that the rewards offered at different levels are substantially different from each other. For example: if the top-level prize is a weekend getaway to Las Vegas, we would not want to offer a weekend getaway package at a local casino resort as a level-two or level-one prize because they both have similar intrinsic value. Instead, we may want to offer a family pass to a nearby amusement park or movie tickets to the first showing of a popular movie at a local theater because, while these alternatives have lower market value than the top-level prize, they are valued by recipients for different reasons.

Stepping Up Productivity

"Caution - Pipe-wielding ghosts on stairs"
by Oliver Hammond
CC By-NC-SA
For under achievers, Steenburgh & Ahearne suggested a couple of tactics: first, set up smaller goals to help under achievers meet expectations. In my earlier example I said that the average under achiever assembles 2,550 widgets a month. Instead of setting a goal that requires the worker to assemble 3,000 widgets in two months, the worker's manager could set a smaller goal of increasing production by 25 per week (5 per day). These short-term, incremental goals could help workers who are feeling overwhelmed by the employer's standards feel that the standards are achievable and manageable.

The second tactic suggested is peer pressure, such as posting metrics on a board that is visible to all employees. Steenburgh & Ahearne suggested that this be implemented with caution; some employees will respond well to an increased competitive spirit while others will eventually avoid coming in to work to avoid embarrassment or feelings of failure.

Having experienced both tactics before in a factory and call center environment, I prefer the first method because it gave me a sense of accomplishment without feeling degraded or embarrassed. I personally don't see how fear of embarrassment can motivate anyone. Honestly, when some of my employers implemented this method, I hoped that they would just fire or crucify me. I didn't care which one, as long as they took my name off of that stupid board.

Final Thoughts

Maybe I sound like I'm being too inclusive; like I just want to please everyone and avoid firing under achievers. That's not it at all... I just want every employee who is performing well to have a fair shake at whatever rewards are available, I want every under achiever to have the opportunity to perform well (whether or not s/he chooses to do so it up to her/him), and I think that these ideas are worth looking at because they address the problems with rewarding a diverse workforce.

I believe that in order for an incentive structure to work (especially when it's non-cash), employers need to find out what their employees value. I think that this should be done on an annual basis because:  half of the bachelors in your workforce from last year may have gotten married, half of the married people in your workforce last year may have had kids, one-third of last year's workforce may have retired, three-quarters of this year's new hires come from different backgrounds, and the under achiever you were going to fire last year is now an over achiever who wants to go to Las Vegas instead of the movie theater.

In other words, employees' motivations and values will change as they go through life; it's up to us to find out how these motivations and values have changed so that we can create and implement compensation programs that employees value.

Comments? Thoughts? Suggestions?

 As always, I appreciate any feedback or thoughts on my articles. You can do this by either commenting directly using the "post comment" link below or you can send me a private comment using the "Contact Me" tab above if you want your comment to be private.

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