Should compensation be linked to rewards?

Many organizations use compensation and reward as a way to drive high performance. But is that really the best approach?

When it comes to performance measurement systems, staff buy-in, support, and participation are key. Often organizations assume that because management and leadership support measurement, employees will be onboard as well.

But employees find measurement threatening—many worry that it will lead to punitive action. One of the more controversial ways that organizations have attempted to gain buy-in is through connecting performance targets to compensation.

According to the recent APQC Best Practices Study Using Metrics that Drive Bottom Line Value, 75% of best practice organizations link compensation and rewards to achieving performance metrics; all of those organizations agree that it helps gain buy-in for measurement.

Best practice organizations have found that employees become more aware of the critical role that metrics play and, subsequently, take more accountability for specific metrics. In addition, employees often make a connection between their performance targets and their job goals.

This practice is sometimes considered controversial because many people, both employees and leadership alike, are concerned about an employee’s ability to meet specific targets.

Many ask: Are the measures fair? Are they attainable? What if people can’t control a measure?

The responsibility lies in the hands of leadership to thoughtfully consider what each metric measures and who actually contributes to its attainment. After that sort of evaluation, the measures can be assigned to the appropriate employees.

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Two organizations from the Using Metrics that Drive Bottom Line Value study link metrics to compensation. Cargill Corn Milling focuses on the connection between personal and enterprise goals. They have a model that shows how business strategy cascades down into specific results that each employee is held accountable for based on their job function.

Similarly, each employee at Delta Dental of Kansas receives incentives based on a combination of their balanced scorecard results, a values assessment score, and whether the organization meets objectives. The values assessment gauges employee behaviors against enterprise values.

At the end of each year, individual scorecard numbers and individual values assessment scores determine annual merit increases. Click here to read the Cargill Corn Milling or the Delta Dental of Kansas case study.

Linking compensation and performance measures can have positive outcomes, but not everyone agrees. Do you think? Should compensation be linked to metrics? What is your experience with this?