With the very lively debates of the merits and demerits of the latest proposals for a more flexible
wage structure, HR managers worldwide are facing a new challenge - how to design and implement
pay structures, which motivate employees and at the same time allow the organization flexibility in
their wage cost. Whilst many organizations are in the process of reviewing and implementing the
strongly recommended MVC, we will explore some other ways to maintain a flexible and effective
pay structure.
Linking pay to performance, variable pay is often used to show appreciation of work well done and to
motivate employees. Such Variable pay programs may include:
- Profit Sharing
- Gain Sharing
- Individual / Group Incentive
- Recognition / Appreciation Award
- Equity / Stock Award
- Lump Sum Bonus
- Key Contributor Award
And, of course, there are numerous types of recognition plans such as paid sabbatical, travel
awards, vouchers, etc.
How does HR make a variable pay program effective and exciting? Briefly, here are some factors to
consider:
- Integrated with the organization's business strategy - It is crucial to have the acceptance
and support by the top management.
- Design a program to focus employee efforts on areas critical to organization survival and
success by rewarding results employees can influence.
- Plan and process to reflect the organization's culture and values - For example, don't use a
gain-sharing plan if you're not willing to share information with employee or if trust is low.
- Cost-effective program - If your organization is squeezing out profit margins to survive,
participate in that effort by maintaining or reducing fixed compensation costs. Consider
paying salaries only to the range midpoint or market rate and provide bonuses to reward
outstanding performance.
- Don't expect perceptions to change overnight. Traditional system has been around for a long
time, allow employees time to accept and adapt to the changes.
- Be prepared to spend time and effort to train and educate managers and employees - There
is a need to alleviate their fears, and gain understanding, acceptance, an credibility for any
new approaches.
- Clear and Ongoing Communication - It's important to reinforce the link between the
organization's ability to achieve business goals and its ability to support an effective
compensation plan.
- Pay out awards as frequently as you can administratively - The closer the reward is to the
performance event, the better it will reinforce performance.
- Make the program important - Publicize, promote and market the program to make sure
everyone in the organization knows and understands the importance of the program to them
and to the organization
- Build reasonable expectations - Be realistic and follow through with promises. For example,
don't tell employees you'll pay for results and then give discretionary awards to selected
people who don't meet their objectives
- Above all, INSPIRE! Do whatever you can do to get people excited and focused on improving
individual and organization performance.