Curve your Remuneration Policy
Organizations aim to reward their employees for contributing to the goals of the organization. But how to pull that off? ‘It is not an easy exercise,’ says Jef Vandenberghe, Managing Partner at CREAX (See also ‘who is CREAX). Two years ago, CREAX felt their reward policy needed a breath of fresh air.
Maxime: What were the challenges CREAX faced at that time?
Jef: “The usual issues, I guess. As in many companies, I suppose, we had the yearly ritual of evaluation-talks where we tackled future salary and career perspectives. Somehow, everybody ended up to be unhappy about those. On top of that, the system was perceived as unfair. Our people thought the loudest voices got the biggest chance to get a raise.”
Maxime: Did you experiment with other solutions?
Jef: “We considered working with bonuses, but it’s very tricky to find a good bonus system. For example, a bonus for delivering top-quality seems like a no-brainer. However, when you think it through, there is a trade-off with time-efficiency. There is always time that could be spent on some enhancement. Improving quality is a good thing, but exceeding the time budgeted for a project, means a loss in profitability for CREAX. And once that happens all the time, it becomes a major cost.
Maxime: When considering a new reward-policy, what were the important goals?
Jef: Our primary concern is to keep the right people on board. Our people are the ones that create our added value, so it’s important that we keep them engaged. Also encouraging teamwork and efficiently delivering top quality for our customers, our primary focus, are important goals.
“We proposed basically two things. First, separate the remuneration policy from performance management. Two, pay employees a predictable, competitive and fixed salary package.” says Cédric, managing partner at the VIGOR Unit, who advised CREAX
Maxime: Can you elaborate on making a difference between reward- and performance management?
Cédric: Managing performance means using tools that support and motivate your employees to make progress in their work and as a professional. Think of processes like goal-setting, debriefs and creating a feedback-supportive work environment. A remuneration policy has another goal, it’s about compensating employees for their contribution to the organization. Whether you like it or not, it is an economic trade that should not corrupt how people think, feel and behave at work, unless the trade is perceived to be out of balance.”
M: And a predictable, competitive & fixed salary? That’s kind of counter-intuitive, why is that important?
Cédric: From solid research we know, that for employees to perceive the remuneration policy as fair, an organization should pay people a competitive wage. This means that compared with everybody else inside or outside the organization, performing the same type of work with the same experience, the salary is perceived to be above average. We also know that you can assume that approximately 80% of your employees will perform as expected. So, why go through the hassle to evaluate everybody every year? Instead you could agree upon a predictable and fixed increase in salary in return for performing as expected. As such, you can limit evaluations to those employees that perform exceptionally well or those that seem to be lagging behind.
Maxime: Jef, what were the main takeaways for CREAX?
Jef: Well, we implemented the distinction between performance management and the remuneration-policy. One of the big advantages is, that talking about performance became more natural. In reviews people are more willing to open-up, as it is detached from evaluation. Recently, one of the colleagues said ‘I know I didn’t perform at 100%, there were some personal issues but those are solved now’. I can’t imagine people would have admitted that in the past. Also, now as a norm, everyone in the same function receives the same and competitive salary. And, for our senior employees there is a fixed and predictable increase in salary. It’s nice to see that, as a result, discussions about salary seem to be off the table now, they know they are paid well and how it will evolve.
In the spring, we will organize an exclusive workshop on this topic. If you’re interested in learning more about our vision on employee remuneration, as well as the theory and research behind it, please let us know via info@vigorunit.com. We’ll keep you informed on the date and content for the workshop.
I am an I&O psychologist and R&D consultant for The VIGOR Unit. If you need any help or advise on performance appraisal, do not hesitate to contact me. info@vigorunit.com
Who is CREAX?
CREAX is an an innovation consulting company. They help their clients in solving problems through innovation, creating new products or services, developing new markets and offer market intelligence i.e. mapping developments in a line of business.
The team working at CREAX consists of product developers, engineers & scientists, they are highly skilled, PHD’s and masters, with industry experience.