Reward systems are complicated and getting them right is not easy. Over the years, I have heard several objections to my framework that I’d like to share with you.
First, not all jobs are easily translatable into value-added outcomes. Some have long lag times, like R&D and Strategy, before you will know if those jobs produce any value-added outcomes. So, how do you use this framework while you are waiting for those outcomes to accrue (or not)?
This is not unlike founders who start a business. It usually takes 5 to 7 years before you know if it will succeed. People in those jobs and the companies who need them will have to take a more long-term entrepreneurial approach. The employees can try to negotiate like our 90-10-0 example and not get any of the rewards that might occur later down the road. Or, they can negotiate a participation in the longer-term rewards. For example, a grass seed scientist kept the patents on all the seeds he invented for the company. He then granted a license to the company to use his seeds in return for 25% of all sales for the entire life of the patent.
For other jobs, like Strategy, I always return to our earlier discussion of performance evaluation. If you can’t link your job to bottom-line, critical-path outcomes, then you are putting yourself at risk. You are relying on other people somehow valuing you and what you do. That’s often not a good place to be.
Second, the framework makes compensation more complicated—9 cells with three types of possible rewards in each cell creates 27 possibilities for each person. Yep, that’s right—and that’s its power. It forces us out of the one-size-fits-all mindset that actually interferes with the employees and the organization focusing on critical path outcomes. Instead, it forces us to create a fine-tuned, personalized reward program for each worker.
Fortunately, in this era of almost unlimited computer power and big-data analytics, we can create and keep track of each person’s unique reward profile and program. This customization wipes out an employee pointing a finger at the reward system for their lack of productivity. If they don’t like it, they can try to change it during the negotiation period.
By analyzing all these individualized plans, the company can then look for reward patterns that lead to high performance. This data can then be shared with all employees who might want to switch to those high-producing patterns.
Third, people complain that the framework seems too mechanistic. Yet, I think the reverse is true. Yes, there are the levels and types of performance and by filling them in with your numbers, you create certain percentages in each cell. However, the thought process that goes into generating those numbers is far from mechanistic.
You have to consider:
who you are,
what your personal and financial needs are,
what your risk tolerance is, and
what motivates you, etc?
You also have to think about:
the company’s needs and expectations,
their rewards philosophy, and
the critical path and how you can contribute to it.
Then you need to negotiate with the company to get a rewards deal that works for you. All this is far from mechanistic.
Critical Path Action Items
What are the positives of your organization’s current reward system?
What are the negatives that undermine critical path performance?
How would you change your organization’s reward system so that it reinforces the critical path and drives value-added outcomes?
What would your ideal reward system look like for you and your company?