How do you really engage a workforce and make them stakeholders in your company’s success? Paying everyone competitively isn’t enough—nor is merely following best or prevailing practice. And competing for a “Best Place to Work” or “Employer of Preference” designation is more likely to reinforce an entitlement mentality than create a performance culture. While most company leaders know paying for performance makes good business sense, there is a knowing-doing gap between believing something adds value and actually implementing it.

This is where your company has a huge opportunity to win in the competition for high-performing talent—the people with the critical skills and competence plus the ability to translate these capabilities into measurable results. High performers want their performance acknowledged and meaningfully rewarded—the goal should be to create the “Best High-Performance Place to Work.” Why should you do this? Because it is the only pay solution that makes solid business sense and creates a culture where paying for performance is “how it is done here.”

What does this mean in terms of concrete actions businesses can take? We suggest it means ignoring conventional wisdom and considering practical business solutions that get the best people and help make your business a success. In our new book, High-Performance Pay: Fast Forward to Business Success, the goal is to “bend leaders’ minds a bit” with the following executable suggestions:

·         Focus pay first on the top-performing 20% of the workforce that may provide about 80% of the value to the business. If this talent pool is fully engaged by meaningful rewards, the business will be well served.

·         Put everyone in the company on incentives or variable pay with business metrics that emphasize both the customer and the company goals. Variable pay communicates values and directions and fights entitlement. Variable pay is the best ROI move to make for your talent pool.

·         Make performance management really work. Go beyond forms design and make it a tool of business excellence. Create a high-performance place to work by providing feedback, coaching, recognition and early course corrections.

·         Make business goals the center of total rewards. If a total rewards component does not add business value, reject it entirely. Top-performing companies get and keep the best talent, and high-performing talent rejects a culture of entitlement.        

Pay is arguably the largest opportunity expense your business must manage effectively. If your company isn’t going to pay for performance, what will it pay for and why? Why do we suggest using performance metrics focused on both the customers’ and the company’s own business goals? Many companies appear to lose contact with their customers, especially when it comes to the design of pay. When they ruled the auto industry, GM and Ford, to name a few, shared the success of the companies among the employees, union, management and shareholders—but ignored the customer. Japan and Germany put the customer first and won the auto market.

When the legacy airline industry was hit with deregulation, the same thing happened. Management, unions, employees, and shareholders got their share at the expense of customers, and new entries like Southwest Airlines took the market here, too. Will the U.S. government continue to bail out these companies? Probably not, because the situation has changed. Helping them survive may not be worth it as it was at one time because of their difficulty in improving efficiency and competing for the long term.

The Engagement Opportunity

 The plain fact is that businesses that pay for performance outperform those that don’t. Research shows that the best HR return on investment (HR ROI) is an incentive plan that includes non-management employees. And the engagement issues are that the top-performing 20% of the talent pool are attracted to pay-for-performance businesses. CEOs want improved ROI from compensation costs because people costs leverage all performance opportunities. And in a short-supply talent market, if you want to hire the people who are the bread and butter of your enterprise, you have to hire them away from someone else. 

We need to engage talent making them stakeholders. Some 50% or more of the workforce are not engaged, and studies show that 8 of 10 employees are planning to find a new employer. It is not just paying more because there is a surplus of capital chasing a scarcity of talent and the skills and competencies they bring with them. The reason we need top performers who want pay for performance is that 60% of the new jobs will require skills and competencies that only 20% of the workforce now have. It is not just a nice thing to do anymore—creating a best high-performance workplace is essential to any enterprise’s future. 

Creating the “Best High-Performance Workplace”

No company has been anointed as a “best place to work” because they based total rewards on a strategy that engages talent by focusing on paying for performance, skill and competency. The way to become a best-place-to-work organization is to apply and go through a qualification process that focuses often on offering more liberal benefits and workplace amenities that don’t create a win-win between the workforce and the business. So the potential of creating entitlements is significant. Some best-place-to-work organizations are cutting health and retirement benefits on one hand and offering sabbaticals and shared jobs on the other—not the way to engage a workforce during times of scarce talent.

1.      Quality Talent Pays—And Should Be Paid: How often do you hear CEOs challenge the business to get as many average-performing people as possible? The cry of, “Let’s be average!” is just not something you hear very often. Some businesses may end up being average because they don’t get the people they need to contribute, but it is seldom a business strategy or a part of the talent-management agenda. High performers serve as a magnet for more excellent performers with the skills a business needs. One CEO said, “Even if we have only a total of $2.00 for pay adjustments in any year, we are giving this to our top performers.”

2.      Variable Pay Works—And Proves It: A well-designed variable pay or incentive plan generates returns/gains of about four times the cost of employee payments. A typical incentive plan generates a return of about twice the cost. Nothing in the arena of total rewards gives the return that variable pay does. It communicates goals and priorities and provides the opportunity for managers and people to dialog and discuss goals and how to achieve and exceed them. Variable pay is the agile reward for performance—it does not create entitlement if designed well and can be cause for celebration in the achievement of either individual or shared goals.

3.      Performance Management Isn’t Just a “Form”—It’s Money in the Bank: If talent management is the effective organization of the total talent acquisition, motivation, and development process, performance management is at the center of it all. A talented leader once said, “Every time a manager and employee are talking about work, there is a performance feedback and improvement opportunity going on.” That tells it all about the performance management process (with emphasis on the process). The most important role of a leader, manager, supervisor, etc., is coaching, teaching and providing guidance on the “what” and “how” of getting to where the employee wants to be to be valuable. High-performance workplaces develop talent to be valuable.

4.      Business Goals Equal Business Results—Other Goals Do Not Matter: People are hired by businesses to help make the business a success and to subsequently share in that success. If goals for performance management and variable pay do not relate to the achievement of company business goals, then what are organizations paying for? Talented people want to add value. They want to be able to answer the question, “How do I make this enterprise successful?” and be proud of the answer. This means cascading business goals and translating them into metrics and objectives the workforce members can influence to define success. If a goal is not business-directed, it is not adding value or improving the link between the workforce and the business.

There is no evidence that adding new benefits to the total rewards offerings of any company does not create more entitlement. Companies have learned this and are now laboring under the burden of entitlement cultures to get global business traction. If creating entitlement based on tenure is such a good thing for pay and other rewards to do, then why are not some American-legacy companies doing well and why are many governmental bureaucracies struggling with issues of customer service? The United States Postal Service turned performance around by focusing on key business goals through pay for performance for just the leadership team and professional staff, and the improvement in operational and bottom-line performance was startling. And that was the only thing the Postal Service changed so the improvements were not contaminated by other initiatives.

The Future

Unless it is important to get your company’s name in the newspaper or in a magazine for employee branding, it is not valuable to become merely a “best place to work”—however, becoming a “best high-performance place to work” by offering total rewards to engage top talent is worthwhile. The time is ripe to focus on how best to accelerate and sustain high performance through a proactive talent formula as suggested in this article. All of these suggestions are basic “blocking and tackling” but also involve a course correction—and this is where the opportunity for meaningful advantage rests.

JAY R. SCHUSTER and PATRICIA K. ZINGHEIM are partners in Schuster-Zingheim and Associates, Inc., a compensation and total rewards consulting firm founded in 1985 in Los Angeles. They advise clients on incentives/variable pay, base pay management, performance management, total rewards strategies, executive and sales compensation, and recognition. They received WorldatWork’s 2006 Keystone Award, the highest honor in the compensation, benefits and total rewards profession. They are the authors of the books, High-Performance Pay: Fast Forward to Business Success (January 2007 publication), Pay People Right! and The New Pay. Their Website is www.paypeopleright.com.