‘Greed Is Good’ – Remuneration, Motivation And Organisation

The 1980's business culture in the USA and internationally put a considerable emphasis on personal reward on the basis that highly motivated individuals could transform organisations and societies. The extreme example in film was Gordon Gekko in Wall Street stating that greed was good. The 90's, however, have seen companies traumatised and bankrupted by the inappropriate use of remuneration as a motivator. Yet major corporate successes have been built on reward based remuneration systems. Phones4U recently and Allied Dunbar in the financial services market is an earlier example.

The notorious Barings Bank had individual traders on bonuses in the millions yet in the long term these motivated individuals were not fulfilling the company's objectives. Moreover even when an individual's reward system is based on entirely appropriate performance indicators, resulting in the organisation’s success and he or she is rewarded, there may still be problems arising from the large differential between salaries of senior people and those of middle management. A payment system that depresses or demotivates 10 people for every one it motivates may not be the best for the organisation.

Wise organisations are therefore trying to reward and motivate all staff so that staff act energetically to further the corporation’s interests both short and long term and feel they have been treated fairly. However there must be properly in place the link between the items on which they are being rewarded and the actions they are able to take to influence the desired outcome.

A wise organisation accepts that:

• It is reasonable for the individual manager to act in his or her own interests.
• Managers work for people not organisations and want to please the superiors closest to them, or failing that, their peer group.
• Managers want to achieve and will be attracted to those tasks at which they know they can succeed, usually favouring the short term at the expense of the long term.

The clear implication is that an organisation should lay some groundwork before relying on a remuneration structure to change performance and behaviour. In other words the management and organisation system must be in balance with the remuneration system.

There are 5 major pre-conditions to the installation of an effective reward structure.

1. Measurement: “If you don’t measure it you won’t get it”. There are various measurement systems of which Balanced Scorecard, which sets multiple objectives and is used by Tesco, is perhaps the best known.

2. Monitoring: If the performance measures are not monitored properly or only monitored in a review at the year end, it can give the manager signals that they don’t really matter or, worse still, that failure is acceptable providing all the managers fail together.

3. Control of the tools for the job: The organisation must ensure that the individual is not over dependent on factors outside his control to achieve the performance measures set out (this is the ‘how’ part of the equation).

4. Consistency: Ensuring that short term organisational factors don’t over-influence managers or drive them from their real objective. The organisation must also ensure that its own design (be it bureaucratic or loose) is appropriate to what is being asked of managers.

5. Reward and strategy in line: An organisation's achieving a clear strategy is not an event that will take place in the future; it is a journey. A remuneration system can be put into an organisation even when it has a relatively muddled strategy providing that organisational and management disputes are resolved by reference to strategy and the “balanced score card”. Only then will there be pressure on the organisation to refine its strategy, structure and remuneration systems.

Based on these 5 pre conditions, there is a checklist of 10 factors that the effective remuneration and reward structure must achieve:

1. Support the business strategy
2. Encourage the desired behaviour
3. Reward relevant performance
4. Be fair
5. Be substantial
6. Be tax efficient
7. Be timely (The reward must take place close to the achievement)
8. Incorporate non financial rewards (Recognition can be as important as cash)
9. Be firm (A bonus lost through missing target should not be recoverable whereas a salary increase should only be delayed until target is reached)
10. Be crystal clear

Money In Reward And Recognition Systems

The role of money as a motivator is indisputable if you don't have enough. With bills to pay and mouths to feed, most hunter/gatherers will push themselves to get enough money into the bank account to remove those troublesome worries. However, once the threshold of comfort has been reached and there is a steady flow of money coming from a job that is well understood, can money be used as a further motivator?

The answer is firmly in the realms of "it depends". It depends on the individual. Some people will always "jump for the jellybeans" because their lifestyle and their conditioning demand that they acquire the next best car, house, entertainment center or vacation. Others satisfy themselves with smaller dreams that they can achieve without being overly ambitious.

Why Reward Systems?

You will have ambitions for your business. It is important to you that you make the most of your investment both in money and in time and it is important that the people who work with you are focused on the same outcomes that drive you. A well structured reward system can accommodate everything that your people desire and can demonstrate to those who want to do better for themselves, just what it is they need to do to make it happen.

A reward system is more than pay levels, bonuses and stock options. It should encapsulate other forms of recognition for a job well done including promotion, reassignment and a range of flexible bonuses that can be selected to match the particular life-style of the individual person.

Reward systems should be based on the fundamental premise that "You get what you pay for". The old adage "If you pay peanuts, you get monkeys" could never be more true however you also don't want to bankrupt the company, so the balance can be a fine one.

The reward system also has to be responsive. People tire of stretching themselves for future promises. How many times have you heard "If you do this well I'll consider a pay rise at the next review."? If you fail to reward appropriate behavior quickly, you stand less than an even chance of getting the right result.

What is the Reward Strategy?

Like all business activities, it is important to be clear for everyone concerned how the reward system interlocks with the business mission. The Reward Strategy is designed to demonstrate how the company values its people and how the payment practices it adopts help to engage and motivate employees.

The Reward Strategy should deliver the following:

A framework within which the rewards provided by the business will operate
Clarification of the reward objectives
An outline of how reward will be managed
A link between the expressed values of the business and the methods used to manage reward

The total Reward System is, of course, much more than just pay and benefits. Employees also see value in career opportunities, personal and professional development, the management style and, coincidentally, recognition.