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Gap Between Pay and Performance
Human Resources via Yellowbrix
November 02, 2009
The media coverage of exRBS chief Sir Fred Goodwin’s huge pension pot triggered much debate about the connection between performance and remuneration. But ‘Fred the Shred’ is far from alone in securing enviable rewards for failure. Research in September 2008 by corporate remuneration consultancy Patterson Associates found that CEOs of under-performing FTSE 100 companies tended to earn more than those delivering better shareholder value.
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More recently, DigitalLook research on non-executive chairmen indicated that the top 10 best paid saw their companies’ share price plummet by 36%, while the lowest paid actually played a part in delivering a 1 % share price rise.
Clearly as non-execs they cannot be held fully accountable for company performance and, during a period of equity market turmoil, factors other than share price must be taken into account when deciding remuneration levels. Nevertheless, such stories highlight the uncomfortable fact that there often is a big discrepancy between what is merited and the actual reward.
So how can organizations recalibrate their pay and payroll systems to reward talent and achievement instead of failure and bluster?
“We are seeing greater moves to align performance with reward,” says Dave Inman, business development director of performance management business Qikker Solutions. “At the moment, for many this appears easier to achieve for discretionary pay, that is, ‘pay for performance’. This is typically because many organizations do not appear to have a formal ‘job family’ structure that describes defendable pay scales.”
Nick Felton, head of business intelligence at COA Solutions, the company behind the People Analytics employee performance software, says many companies are holding back from bringing HR and payroll closer together and concentrating more on performance because of cost worries. However, Felton argues that not investing in this way could prove a false economy, as rewarding performance fairly may drive business growth.
Felton works with clients in the banking and IT outsourcing sectors. “We’re doing a massive project for a large company that we are rolling out to 26 countries across EMEA,” he says. “The focus is on linking reward to performance and they are linking in appraisal scores across all of those 26 countries.”
