When resources are limited, it is critical to utilize them effectively and efficiently. One way to cope with the current limitations an organization can afford to spend on its workforce is to maximize workforce productivity.
Research tells us that defining, measuring and rewarding performance equitably, competitively and appropriately creates the motivation to perform well and contributes to job satisfaction. Employers are struggling to retain talent and to reward employees in a manner they view as adequate to offset inflation. If employees perform well and are satisfied, it makes the budget go further and reduces dysfunctional turnover. But the organization must be able to measure performance accurately.
A Mutually Respectful Dialogue
Performance management often is identified as the weakest component of workforce management systems. One reason is that it often is viewed as an HR program that creates administrative burdens but does not deliver value that justifies the effort. Research has identified limited dedication to adequately training managers in performance management as a common reason for poor administration. Understanding what performance management should be is a key to helping managers discharge their role effectively and to convincing employees they are being treated appropriately. It is difficult to ensure employees understand that their performance, not their personal worth, is being evaluated. Doing that requires skills that must be developed. They also must believe that their performance is measured by results, not what they look like, what they believe or where they came from.
Performance management should be a continuous, mutually respectful dialogue that results in a fair evaluation of an employee’s contributions. Expectations that are understood by all parties are formulated at the beginning of each performance period. Performance is continuously measured against the expectations, and feedback is provided to employees to ensure everyone agrees on what is happening and what needs to happen going forward. A continuous record of results and behaviors is created and documented, to be used as the basis for frequent dialogue aimed at dealing with the realities that manifest during the period. When formal appraisals are done at the end of the period, the record serves as a reminder of what happened, which avoids the disaster scenario: the night before the appraisal, both parties attempt to re-create the year from memory, and then they meet to debate the inevitable differences between the versions.
When performance management is done well, it can serve as the basis for rewarding employees equitably and appropriately. Public- sector organizations are increasingly basing pay adjustments on employee performance, which takes advantage of the motivational potential of performance-based rewards. Almost half of the federal workforce has been taken out of the GS system and moved into excepted service systems that are designed to pay for performance. The reasons for changing systems were the inability to adequately reward those who contributed the most and that the “same for all” approach sends the message that performance does not really count. Organizations with small budgets can best deal by optimally allocating the funds that are available.
Recognition and Inclusion
Not all rewards must be financial. Well executed recognition programs can contribute significantly to motivation and satisfaction. Yet for recognition to be viewed as valuable, it must be for the right reasons and be given to the right people. For that to occur, the organization must effectively measure and value contributions, which is the purpose of performance management systems.
If a team of people or a department worked together to produce a valued result, the recognition might be done at the group level. If individuals deserve recognition for their personal contributions, they can be recognized. The reward may also consist of a long weekend, or a developmental assignment, aimed at increasing employee capabilities or accommodating their interests.
The culture that exists within an organization can also be a to for attracting and retaining talent, without having to cut a check. Providing an inclusive environment that is respectful of all points of view and of all types of individuals can offset the inability to pay as much as other organizations can.
Managerial behavior trumps formal policies and proclamations in setting the tone. With avenues like Glassdoor being widely accessible to employees and potential candidates, it simply is not possible to hide the reality of what it feels like for someone to work in an organization. People who feel welcome and safe are less apt to troll want ads.
A Compensation Philosophy
Open communication among all parties can also have a positive impact on employee morale. Recognizing the impact that the current short-term inflation is having on employees and ensuring they understand the organization is doing what it can, given its economic limitations, is necessary. A water utility may view a drop in water usage attributable to customers’ ability to pay the bills as being good for the environment, but at the same time must function with the reduced revenue.
Employees often expect their employer to “keep them whole” with respect to their real purchasing power. This mandates that organizations make it clear that pay levels are managed based on the cost of labor, rather than the cost of living. Over the last four decades, the cost of labor has increased about 40% faster than the cost of living. But in individual years, the relationship between the two measures can vary significantly. During high inflation periods, the increase in the cost of living was higher than the cost of labor, but in all cases, the numbers eventually flipped, and the cost of labor was higher for the next several years, creating a “catch-up.”
Employees will want the higher of the two numbers in each year (2022 is an extreme example), but any employer doing that would price itself out of business. One of the most important steps that management should take now is to educate employees about their compensation philosophy and why pay levels must be managed based on competitive labor costs.
Pay increase budgets for the last decade have been around 3% of payroll for most organizations, according to published surveys. For organizations wishing to convince their employees they care about the impact of short-term inflation of 6% or more, there are several options. Perhaps the least practical is increasing base pay rates by a large amount. That will permanently increase the payroll into the future, and if economists are correct (i.e., that the inflation rates will subside within a year), the employer will now have to deal with the increased fixed cost burden … forever.
One option is to maintain a more typical base pay increase budget and to grant a “short-term inflation offset” award. A cash payment equivalent to one or two weeks of pay could be distributed, accompanied by an explanation that this action is the result of extraordinary circumstances, and not a change in pay policy.
If there is a desire to channel a larger amount to lower-paid employees who are less able to manage the spike in inflation, a pool of 2% to 4% of payroll could be created and the awards could be the same dollar amount for everyone (pool divided by the number of employees). Since money is involved, this will get the employees’ attention, providing an education in how and why pay is managed the way it is.
No Strategy Is Universally Effective
The pandemic and its aftermath have created an extraordinary impact on employers and employees. How well these circumstances are dealt with will have an impact on organizational effectiveness well into the future. Each organization must determine what fits its specific context, rather than assume there is a strategy that is universally effective.
09 August 2022
Category
HR News Article