Consultation : How Best To Pay For Performance?

Does performance pay work? We are thinking of implementing bonus scheme but lot of the research I have done seems to tell me it doesn’t work.

The first thing to consider with performance pay is what are you aiming to achieve? Are you rewarding people for achieving the business plan? Is it to reach stretch target? Are you looking for increased engagement or innovation? Do you want to motivate individual or team effort?
There are definitely many pitfalls involved with this but being clear on your objectives helps significantly. For example, if you want people to feel more ownership of the business and what they do it can be very effective to share the profits
with them.
This has to be realistic figure that people feel is worthwhile aiming for. For example, an incentive pool equalling 10 percent or 20 percent of the profits. This provides excellent motivation.
If good profits are made then the individual return is good as well. However, if low profits or losses are made then there is immediate feedback as there is no, or little, pay out. This can work very well in team as not only does it focus people’s attention on business outcomes but it also motivates them to jump over internal boundaries and help each other for common goal.
However, if you do this it has to be managed openly and well. It must include clear guidelines on how people are expected to behave.
Otherwise they may go for large short-term gains rather than long-term sustainable profit. It is up to you as the manager to handle this effectively.
On the other hand if you want to motivate people to stretch beyond the norm then you first have to make sure their normal goals are adequately rewarded. Then you can offer some incentive for clearly defined stretch goal. For example, travel or shopping vouchers.
Generally people will gain lot of additional satisfaction in stretching for this and the rewards do not need to be great to get results.
I know of an organisation that achieved an additional $1.5 million for performance pay investment of $45,000. Generally at this level people will gain more satisfaction for achieving tough goal and being recognised.
So definitely consider performance pay or bonus scheme but make sure you know why you are doing it and are able to manage it well.

What is “Kaizen”? number of people in my office keep talking about it and give me the impression they have had some sort of transforming experience. What on earth are they on about?

The word “Kaizen” is Japanese and means “improvement”. It is used to refer to philosophy of continually improving the way I, or we, do things. It arose when several American business consultants, including W Edwards Deming, worked in Japan after the Second World War to help the recovery of business. These consultants were experts in the current theory of management at that time, which was focused on statistical analysis of work and the standardisation of processes.
This appealed to Japanese businesses which developed the concept further.
A large element of the Kaizen philosophy is to learn to spot and eliminate waste in business processes. This leads to the current popular maxim of “lean manufacturing”. Everyone in the organisation can participate. However, in today’s world it will also likely involve customers
and suppliers.
Here is an example of how an organisation might apply the Kaizen philosophy. work team of say six to eight people, led by their line supervisor, discuss their work processes and the things that work well and things that don’t. Through this particular process might stand out as being one to focus on for improvement.
The team then draw up simple flowchart of the process and work through each of its stages looking for ways to improve it. Having agreed on some ideas for improvement they then try them out. Following this they meet again, perhaps with some quantified measurements, to see if there was any improvement.
If there was improvement they then embed the change into the ongoing process. If there wasn’t then they try to identify why and see if they can generate further improvement ideas from what they learnt. This is called the Plan/Do/Check/Act Cycle (PDCA).
The end result is very empowering and enables people to engage more deeply in their work. The overall result is the creation of continuous learning environment which is of enormous benefit to the organisation.
Toyota and 3M have been cited as typical examples of the application of this philosophy. Give it go and see what happens.

Kevin Gaunt, FNZIM, FAIM, is CEO of NZIM Auckland and has been senior executive with, and consultant to, some of New Zealand’s largest companies.

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