If the role of rewards is to drive performance, managers should make performance the only lever for controlling rewards. That means it is critical to make very clear to individual contributors exactly what performance—what results, within what guidelines, parameters and deadlines—the organization needs and will, therefore, reward. This must be done on an ongoing basis because the results required of any contributor in any organization nowadays are likely to be in constant flux.

Rewards should not be spread around equally in an effort to treat all contributors the same, unless business leaders are trying to turn their organizations into communes. The issue of fairness often comes up when differential pay for high performers is discussed. So let me offer a way to think about fairness: There is nothing that could be less fair than rewarding high performers and low performers the same. Compensating high performers at a higher rate is not only fair, it’s the only fair way. Rewards should not be wasted on people who fail to meet stated goals and deadlines. And individual contributors who perform must be made confident that their performance will result in proportionate financial and non-financial compensation. Every single resource an employer can make available to employees should be positioned as an incentive for performance.

Just as managers must become performance coaches, they must also position themselves as purchasing agents—purchasing the added value (concrete results) of individual contributors every day in exchange for compensation. Just as purchasing agents must negotiate with vendors, managers must learn to negotiate with employees. Employees can be expected to drive a hard bargain and so should managers. And just as it does with vendors, the market ultimately will dictate acceptable terms in each case.

Stay strong!
Bruce