The common pitfalls with performance-related pay

Linking pay and reward to performance is nothing new, but do it with care.

I never took kindly to the idea of respecting my elders. As it happens, I have immense respect for a number of people from an earlier generation, because they have seen and experienced more than I have, and learnt from their experiences. It’s not age that makes the difference, though, because many of their contemporaries remain as ignorant now as they were then, despite all their extra experience.

In exactly the same way, seniority at work is no guarantee of wisdom or judgment, or anything else. Let’s face it, in every organisation, there are passengers – people whose only talent is survival. Usually this requires an ability to size up the situation, find out where the power lies, learn the strengths and weaknesses of your colleagues and understand how the system works. Then, depending on the organisation, it may be possible to survive without doing anything useful simply by knowing when to look busy, when to smile, and when to shout at someone weaker or flatter someone stronger.

Buinsess confidence Index

Just ask some of those brilliant head teachers who have turned round failing schools and you’ll find that one of their hardest tasks will have been to get rid of the underperformers, the long-serving teachers who were determined to collect their generous pensions – but incapable of changing their ways, learning anything new, or giving the pupils what they needed.

This is not a minor issue. It’s about making sure that all the good work your top performers are doing is not undermined by any weak links in the chain. Right now, as businesses across the globe struggle to emerge from recession, is as good a time as any to take stock, make sure that no one is holding you back, then set about introducing a reward system that ensures that everyone is paid according to what they do, not how long they have served.

Good for employees, good for companies?

Performance-related pay is not a new idea, but only relatively recently has it been given the attention it really deserves. In 2009 Hewitt’s Best Employers in Asia study found that among the best employers – not only the most admired but also the most profitable – more than three-quarters used the kind of schemes that reward high performers and give them a chance to share in the company’s success. By contrast, only about half of the rest implemented performance-related pay; and among the worst, the proportion using performance-related pay fell below 40%. The conclusions are obvious: when you link pay to performance, you get better results.

Things can still go wrong, of course – as the recent credit crunch showed us. In theory, the idea of giving top performers shares or share options sounds like the best possible way of offering a financial inducement that also ties the employee’s success to that of the company. But in practice, a company’s fortunes may wax or wane for quite unconnected reasons – as we saw after the financial crisis of 2008 and 2009 when many blameless but increasingly disgruntled employees saw their precious shareholdings plummet in value regardless of their best efforts.

Another undesirable side-effect is highlighted in Tim Hindle’s book The Economist Guide to Management Ideas and Gurus – namely that “ruthless managers pursued the goal of increasing share value by any means possible, including lying, fiddling the accounts, bribing investment bankers and backdating their stock options so that they began on particularly favourable days.”

Even if you avoid the share options trap, it still isn’t easy to reward on merit. When people work in teams, it’s hard to say which member of the team is making the crucial difference. There are also individuals who don’t have much opportunity to affect the bottom line, but whose personal qualities enhance morale or help others to work more effectively. It’s important, therefore, to set people targets that are appropriate to the role you are asking them to perform.

Getting the measurements right

When it comes to measurement, people are more useful than systems. If you want to find out how someone is performing, it’s almost impossible to devise a system that takes account of all the different factors – a person’s willingness to collaborate, their ability to motivate colleagues, their personal skills and effectiveness – that may be of immense long-term benefit to the organisation. But if that person has a good line manager and trustworthy colleagues, they will know. All of which makes some kind of performance review absolutely essential.

Another revealing finding of that Hewitt study was that Asia’s best employers were much more inclined to involve managers in performance reviews and hold them more frequently. And one result of this was that 28% of staff among the best employers were identified in the “improvement needed” category – whereas that figure was only 12% among the rest.

On the one hand, then, the whole business of performance review is humane and considerate, in that it gives the effective employee the chance to get their just deserts. But on the other, it is also tough and demanding, as it identifies shortcomings and puts pressure on underperformers.

Even now, such an apparently merit-based system gives scope to bad managers to set inappropriate targets, and make unsound judgements of performance. One way to avoid this danger is to have employees set their own targets – as the US company Constellation Energy does by allowing each of its business units to customise their own performance ratings system, typically combining performance against individual goals with demonstration of the company’s core values and performance of specific roles.

With effort and ingenuity, almost any organisation can create a compensation culture than rewards performance. In the meantime, it is worth remembering that money isn’t everything. People don’t work for financial reward alone. For the great majority, it’s about being recognised for the work you do. So while you are developing your own performance-related pay system, don’t forget to congratulate people when they do things well. That’s the best-value way of persuading your staff to support you.

Do you agree? Disagree? Leave a comment

Keeping productivity high in December

It’s tempting to write off the “winding down time” before a major holiday as a period when useful work will suffer – but there’s no need. Identifying important and urgent work, and the difference between the two, is the key…


In First Things First, Stephen R Covey (author of Seven Habits of Highly Effective People) describes a prioritization matrix – a diagram into which we can fit any task, based on its importance and its urgency. A typical matrix might look like this:

Urgent Not urgent
Important Kitchen fireCore job tasksSome emails ExerciseVacationPlanning
. . .
Not important InterruptionsMost emailsMost phone calls Surfing the webFacebookLong lunch-break

The top-right on this diagram – tasks that are important but not urgent – is the easiest to neglect. It gets bumped out of the way by urgent but not important work (bottom left).

If there’s a period at work that you know is likely to be slower than normal, see it as an opportunity for you and your team to get these essential but not urgent tasks done when there’s less outside interruption. Good work for this kind of period includes:

  • Producing medium and long-term plans
  • Forecasting and benchmarking performance
  • Reviewing past projects
  • Checking progress against personal or company targets and goals
  • High-level prioritisation for the coming year
  • Detailed planning for the period immediately after the break

Managing a team during slow periods

Organising your personal workload is one thing, but how can you get the most from your staff in the lead up to holidays? We all have that fear of December being wasted time, but there’s no need for it.

  • If people prefer to work from home or flexibly, this can be a good time to encourage it – a change of scene can be conducive to good longer-term planning.
  • If your team have traveled to a family home for the holidays, give them the chance to work from the nearest Regus office (they’ll probably be glad to get away from the family and get some work done).
  • Set specific goals and outcomes – say “produce a plan”, not “do some planning”
  • Manage your team’s annual leave carefully – either by staggering time off to ensure cover, or by taking the opposite approach and focusing leave on a single week

Have tips of your own? Leave a comment

How to Feng Shui your Workplace

Are you a messy desk person? If getting through the layers of post-it notes, files and print-outs on your desk would require an archaeological dig, using the principles of feng shui could really help.

You might not go as far as the Hong Kong architects who build ‘dragon holes’ to help positive energies flow through their buildings…

Feng Shui architecture

But this ancient Chinese philosophy contains practical advice that can really help your workflow.

Here’s how to feng shui…

…your desk

  • Clear the clutter away

    It’s good feng shui, and it’s easier to work in a cleaner, more organised space.

  • Put a plant in the top left corner

    This is the Wealth section of your desk, so putting a plant there encourages your wealth to grow. And greenery helps oxygenate the air in your office, keeping you alert.

  • Use the front-middle part for your computer

    Filling the Career section of your desk with a computer will boost your business success, according to feng shui.

…your office

  • Keep your home office far away from your bedroom

    It’s bad energy to work near where you sleep, since you’re supposed to keep a good distance between your personal and business life. Having that physical distance allows you to establish a healthy boundary between you and your work.

  • Ensure good air flow

    Air quality is very important in feng shui. Keeping a constant supply of fresh air is supposed to keep good energy flowing through your office.

  • Don’t sit facing a wall, or with your back to the door

    Feng shui says that energy needs to flow towards you, so facing a wall or sitting in front of a door doesn’t help you. And no matter where you’re working, studies have shown that a good view helps keep you alert.

…your computer

  • Don’t use hyphens in email subject lines

    Hyphens are bad Feng Shui (and they also stop subject lines from being concise and to the point).

  • Use a white and blue colour scheme on your desktop

    Blue and white represent water and give you good energy.

  • Organise files and folders

    Clearing the clutter on your computer is like clearing it in the real world – and making sure your hard drive isn’t hard to navigate makes working more efficient.

Do you think feng shui techniques could make you more productive? Leave a comment

The 4 essential trends to consider in your 2014 planning

The latest Regus Business Confidence Index (BCI) shows that business confidence has remained flat overall in the last 6 months. That means that only the smartest, most agile businesses will thrive in 2014.

Have you started planning next year? Here are the 4 global trends you need to consider:

1. New growth markets: Sub-Saharan Africa; Japan; Great Britain; USA

Companies that trade internationally report better performance than those that just trade domestically and expanding abroad has never been cheaper or easier. Now’s the time to steal a march on your competitors.

Since 2010, global confidence has been led by China, Mexico, Brazil and India. That’s all changed in the last 6 months., The latest BCI shows these countries faltering while confidence soars in the US, UK and Japan. In the developing world, Africa is the best market to explore

2. Mobile first

In 2014, phones and tablets are set to overtake desktops as the main medium for email and social media. By 2015 they’ll be ahead as the place where people research purchasing decisions. That means that your emails, banners and websites need to look even better on a phone than on a computer.

3. Reduced infrastructure costs

As more people work remotely, costs per employee can fall. Replace servers and software with cloud computing that employees can access anywhere. Swap long-lease offices for flexible workspace so your people can work where they want, and pay only for what they use. Let employees use their own phones and laptops, instead of buying them inferior corporate solutions.

4. Work-Life Balance

Around a quarter of businesses plan to increase staff numbers by over 25% according to the BCI. This figure is even higher in growth economies. Instead of competing on salary, attract and retain the best people by focusing on flexible working. Look for ways to help your staff reduce their commutes and let them choose the most productive times and places to work.

The 7 habits of highly effective remote workers 

Our new report Managing at arm’s length shows that almost 50% of professionals across the globe now work remotely for half of their working week. It’s become the norm to collaborate with co-workers who you have never met face-to-face.

Here are 7 methods to make a remote team more productive:

1. Check in with everyone multiple times per day

Wherever your team are, daily meetings can keep you united and working towards one goal. You must make sure your manager, and other team members, trust in and understand what you’re doing.

remote working


2. Use technology to build trust

Try keeping a group chat window or webcam stream open all day. It helps your team to discuss as they would if they were working side-by-side, asking questions or opening ideas up to the floor. Alternatively, an automated micro-reporting system allows everyone to share small progressions – when one person finishes a task, the group gets an alert. This keeps everyone in the loop, and lets them benchmark their own productivity against their peers’.

3. Give every team member the opportunity to use professional workspace

Everyone needs a quiet, calm workspace, which isn’t always possible at home. Having a separate work place, and getting away from the distractions of home will boost productivity for remote workers. Regus Businessworld can provide this at a fraction of the cost of a fixed office.

4. Keep strict work processes and targets

To stop people becoming isolated when they’re working remotely, strict operational processes are vital. Things like signoff procedures, quality control checkpoints and daily targets should always be kept sharply in focus. Consider drawing up new job contracts to help people understand that these processes must be embedded in everything they do.

5. Meet up in person

Once or twice a year, get your whole team together for a face-to-face meeting. It could be a company away day, or a strategic planning session. Find the meeting place that’s most convenient for the whole team rather than forcing everyone to fly to head office.

6. Build a team spirit

Organize a weekly online gaming session, host a regular quiz night via Skype, or simply use instant messaging for socialising as well as business. Crucially, your remote team should never be strangers.

7. Organize one-to-one meetings

One of the key arguments against allowing remote working is one of managerial trust: according to Managing at arm’s length, 54% said that management are worried about how remote workers spend their time. Arrange frequent one-on-one meetings with your manager, and your direct reports to review productivity, report on your successes, hear feedback and define your next set of goals.

What’s your experience of working in a remote team? Leave a comment