personal pay and performance

The Endless Dilemma on Personal Pay and Performance

Editor’s Note: This article first appeared on LinkedIn here.

Does the following sound familiar?

“We want to reward people for their individual performance. We want it to be fair compared to others. We also expect that our top performers will see extraordinary rewards. Individuals control their own destiny / impact and therefore their rewards too…Yes yes yes. Lets do all of that!…Hmmm but how?”

Here are some practical ideas on how to successfully solve this dilemma:

1. Build a total rewards strategy first.

I am amazed at how many companies fail to take this foundational step. The answer typically is “We already have that in place. We know what matters when we give out compensation.” But my experience is that most organization don’t have this crystalized and are not as well aligned as CEOs and leaders think they are or want to be.

I could write a whole article on this topic to give it the proper coverage it deserves but to keep it simple, ask yourself these key questions:

  • Do you have the talent profile(s) clear for what type of talent you need in what roles, functions, and levels?
  • Have you defined a crisp set of principles on what guides your reward approach?
  • Are they shared both internally and externally for all to see and to self-select in or out?
  • Have you decided where you want to truly differentiate in terms of reward programs versus every other company on the planet?
  • Have you defined what you value performance wise / want to reward (company, team, individual)?

Make the time. It’s huge ROI. If you need help, ping me I know some experts who are incredible at this work.

2. Define performance and how it relates to goals / OKRs before rolling out your goal and performance processes.

Organizations eagerly, and with all good intentions, often put together some form of performance feedback and / or goal setting process to meet the demands of their people usually in response to rising noise inside the company. Unfortunately, they often fail to truly define what performance is, how they plan to size it up, how it links to their goal process (or does it), and how they connect this to actual rewards. (Is it the sole input that drives specific rewards? If not, what else does and how does it all interplay?)

This creates confusion, distrust, inefficiency (see my post on goals) and ultimately reduces the potential performance of your organization.

Take the time to design this up upfront and ensure everyone “gets it” before launch.

3. Labels always matter more than we believe they will or should.

Most of us now realize that a numeric “rating” such as “Person X is a 4.3” doesn’t do much to motivate anyone and in fact runs counter to the experience-focused lens we put into designing our people processes today. Yet we still fail to truly focus enough on the language we use and the message it sends when defining our terms and labels.

Whatever your planned design is, try it out as if you had to sit down 1:1 with someone and share it. What would it look like in a bonus reward letter?

“Dear Jeff, your performance was “satisfactory”…ugh thanks.

Or “Dear Jeff, you were “highly valued” for your performance this year”…Awesome thanks!

The cynic will say that’s just marketing spin. I would argue that the human emotive element is real – we experience language on a visceral level. Take the time to give it meaning that will drive your people to truly connect to the outcomes. It matters!

4. Recognize that “relative impact” is the only reality.

Unfortunately, what many companies try to do is to link your personal performance on your “goals” directly to your individual rewards almost as if there is a formulaic model that spits out the calculation and the $$$. This approach will not work.

Why? The simple truth is that rewards are ultimately tied to a zero sum game. By definition they have a comparative dynamic embedded in them (if not a competitive one).

Every organization I have ever known has a budget – whether it is bonus pool funding, merit pools, equity pools, etc. I have yet to meet the organization that operates by simply letting managers “rate” performance of all their people and then set the ideal budget to match.

So what does this truly mean? Rewards will always be relative unless they are 100% team / company based. In order to pay teammate X more, I have to essentially give other teammates less (back to that irritating budget thing).

Don’t fool yourself or your people that how they perform on their goals in isolation will 100% drive their rewards. While good intended, this can erode trust, create dissatisfaction with the results, and ultimately lead to unwanted attrition.

It’s time we openly and proactively embrace this fact, communicate it broadly to our people and adjust our tactics.

Now its your turn – share your thoughts and stories!

Jeff Diana
Jeff Diana
Chief People Officer, Advisor

Jeff Diana is the former Chief People Officer at Atlassian. He currently works as a high growth consultant helping pre IPO companies on how to successfully scale their businesses from go-to-market design to product roadmaps to senior leadership assessment and much more. He is focused on partnerships with key VC firms, CEOs, and other world class HR consultants to solve the challenges of hyper growth and to build incredibly successful businesses.
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