An article in the Harvard Business Review reinforced the idea that tying compensation to performance reviews isn’t always effective. In the article, the authors state that using compensation to drive performance leads to hierarchical, politicized corporate environments. It undermines collegiality and fuels a blame-oriented culture, according to the same article.
But financial incentives work, don’t they? Yes, to a point. Problems arise when your superstars bump into the pay threshold for their position. If they can’t exceed that threshold, they may look for work elsewhere that pays better for their skills.
Take a new look at compensation and the performance review
Instead of linking compensation to performance outcomes, an integrated human resources information services system that looks at multiple factors can be used to evaluate compensation.
Such a system can evaluate:
- Performance factors, such as progress towards goals;
- Learning and professional development accomplishments;
- Attendance factors;
- Customer feedback on an employee’s performance.
This type of system provides a holistic, 360-degree look at employee accomplishments rather than tying compensation solely to performance. Employees who provide great customer service may not be the best at achieving financial goals, but their accomplishments can, in the long run, retain customers and save the company money in acquisition costs. Such accomplishments can be more easily noted with a robust human resources system that takes multiple factors into account than a simple system that can only note progress towards arbitrary goals.
It may seem counter-intuitive to decouple raises from performance reviews. One way to ease your employees into the new system is to schedule frequent performance reviews and only one annual compensation review. The emphasis on performance, along with direct and frequent feedback, often helps firms achieve their goals better than the old-fashioned performance/compensation system.
To learn more about what HRIS can do for your company, speak with a BAASS service representative today.