I have been to several organizations in different industries. As far as I have seen, organizations that have an efficient Performance Management System are able to do so because they were able to document and standardized their processes and operational policies. Also, they are gaining and were able to tie-up the results of performance evaluation with their compensations and benefits packages.
Let us say your company or cooperative is doing well and you want to ensure that those employees who are excelling in their performance are rewarded, then you really have to make some changes in your compensations and benefits packages. Let us look at the following:
Salary Increases - How do you increase the salaries of your employees?
From a previous company I worked with, they have a regular schedule of giving annual increases to all employees. The manner they give it is "across the board". A certain percentage of the organization's profit goes to the budget for salary increase. They set a condition that if the organization met their business targets, then everyone will receive an equivalent increase regardless of the employees' poor performance. As a result, those who used to perform well and exert effort in doing their jobs felt cheated and demoralized. And you would then know the aftermath of this -- employees just give enough what they thought is due to what they are being paid for. As a new HR during that time, I saw that the employees have developed a habit of just going on the usual 8 - 5 work schedule. They don't waste time... but they don't also share creative thoughts or contribute to improving their services. When asked for any suggestions or contributions, they would just keep quiet. Also, when employees are being promoted, they were disinterested. They said that they don't want bigger responsibilities because they don't see any significant difference on the pay of a supervisor to that of a regular agent.
It was really a challenge changing their mindset when we tied-up the salary increases to the employees' performance. So how did we go about it? Here's how...
We first informed the employees that the scheduled increase for the following year would be based on performance. That was about a year prior to actual implementation. At the same time, we first developed a salary structure that is aligned with their market value and we conducted a job evaluation to align all employees' salaries, considering their loads, accountability, length of stay and the market value of their position. Thus, during the year of announcement, all employees were happy because they received an increase based on salary alignment.
Then, we presented to all employees their revised job description. Also, during business planning, we get the commitment of the employees on the new targets and each one has to sign a "performance target contract". It's the basis of their next performance evaluation. We made it clear to them that the next evaluation would be based on their individual targets. Then we identified the percentage of salary based on their performance. On the first year of the new performance management system, we provided the following guidelines on salary increase:
- Low to below average performance - No increase
- Average performance - 50% of the next step increase
- Above Average performance - 75% of the next step increase
- Excellent/Outstanding - 100% increase or the next Salary Step Increase
If you look at the above criteria, you would say it's fair enough. But if you really want to stretch the employees capability, then I suggest the following:
- Low to Average - No increase (because average is actually expected of them)
- Above Average - 50% of the next step increase
- Excellent/Outstanding - 100% increase or the next Salary Step Increase
We informed the employees after the 1st year of implementation of the change. Thus, they were not surprised when we finalized the later criteria.
The key to change management is clear communication and complete understanding of the objectives. Taking it a step at a time will make it easier for the employees to accept the new condition.
