Issue 8 - People and Rewards - The Glue That Holds it Together

The PEOPLE element of organization design encompasses all things that have to do with having the best workforce and ensuring that the culture of the organization and the contract between workers and the company is mutually beneficial. It includes how and by what criteria people are recruited and hired to work at the company, how they develop and maintain the necessary skills and competencies, and how they are valued and managed. The key underlying principles of the People aspect of Organization Design have to do with designing a system that enables having the right people, at the right place, at the right time, encourages and enables all employees to make significant contributions that add value, and ensures that they be highly engaged, take initiative, and be involved in meaningful and motivating ways.

The "old" way of thinking about people and work emphasized matching an individual's skills and experience to a particular job which was clearly defined and specified and relatively static (think job description). In fast-paced, continuously changing, high performance organizations, the emphasis must be on finding the people who not only bring relevant skills, competencies, and experience but who are also willing and able to apply them in a variety of situations and projects. Here, flexibility and adaptability are essential, and people are viewed as resources whose abilities contribute to the core capabilities and overall performance of the organization.

Compatibility with corporate culture becomes more important, because an employee's ability to see what needs to be done and do it in an environment that has less stability and structure takes on added importance. Under these conditions, adaptive thinking, seeing and making a path where there was none, and influencing others are critical success factors for the individual and the organization. The "how" of these capabilities is heavily influenced by unique aspects of company norms.

There is also greater emphasis on leadership at all levels, because relying on and waiting for direction that comes primarily from the top slows down organizations. Instead, vision, alignment, and engagement of stakeholders throughout the organization enable people to act with more initiative and speed to achieve common, well understood objectives.

Other aspects of the contract between employee and organization are also changing:

Because innovation is occurring at ever-increasing rates, making sure that workers' competencies are staying current is even more critical. This includes organization, team, leadership, and business skills, as well as the technical, because success in content arenas is increasingly dependent on one's ability to manage organization processes.

As people and organizations move and change at faster rates and structures become flatter, individuals need to take more responsibility for managing their own careers. Frequently, career changes will take the form of "grow-motions" rather than promotions, i.e. changes in scope and complexity of the work and increased opportunities to influence or contribute rather than moves up the hierarchy.

Since the employment contract is based on the evolving match between organization direction and capability and the skills, competencies, and cultural fit of workers, this contract may be less stable and the workforce more fluid than in the past. Increased reliance on temps and contractors as a way to manage the size and cost of the workforce are also contributing factors.

A REWARD SYSTEM is the complex set of formal and informal incentives that connect individual motivation, behavior, performance, and ultimately results to the various forms of pay or compensation received in exchange. It includes not only how people are incented and paid but also how the underlying philosophy and principles about people and their contributions and the goals of the organization are created and communicated, how each individual's contribution is aligned with and tied to organization results, and how performance is managed and appraised. In research done on reward systems, several basic premises have emerged:

. rewards do influence motivation and behavior

. reward systems must focus on what is valued in the organization

. there must be a clear connection between the valued behavior/result and the reward

. if there is a discrepancy between what is espoused as valued in behavior and/or outcomes and what is rewarded, that which is rewarded will be the stronger influencer of behavioral choices

. reward systems must be comprised of thoughtfully and strategically integrated components in order for them to be effective

It is our experience that getting the Reward System of an organization to match and support other aspects of the organization design is the most difficult and challenging part of the process. There are several reasons for this:

Changes in behavior and results are typically a desired outcome in organization design efforts, and the new, valued results must first be clearly communicated and understood prior to making changes in the rewards system. Therefore, actual modifications to the reward system are made later in the process and there will likely be period of time during which a perceived discrepancy between what is being espoused and being rewarded exists.

There is a vast range of combinations of incentives and motivators and of various individual responses to them. What motivates, interests, or supports one person may not work for someone else, even if they're doing essentially the same work. For example, the shift to a cafeteria approach to the selection of health and other benefits recognizes this fact. However, we have not figured out how to comprehend individual variability when it comes to performance management and compensation.

Despite the fact that different parts of the organizations require different behaviors and results, most corporations insist that their reward systems be consistent across the organization. It is difficult to persuade compensation and benefits organizations to modify the fundamental processes which feed and trigger the payout of certain forms of compensation or the underlying assumptions on which they are built. For example, most compensation systems are based on individual performance, thus creating both subtle and overt forms of competition among employees who need to collaborate with each other to meet the organization's objectives.

Nevertheless, if what you have is an organization that needs to rely on collaboration, involvement, initiative, and synergy in order to achieve it's objectives and result--and these days, most do--then the reward system must include, value, and mirror these requirements. Specifically, it will need to:

. comprehend group/team performance as well as individual contribution to the team's results,

. show a clear connection between collaborative behavior and the rewards received,

. avoid creating a dynamic whereby people who need to collaborate end up competing over scarce resources, including the rewards themselves, and

. reward change and speed, for without these, innovation of products and evolution of the organization won't occur

Some closing thoughts on Organization Design: The key here it fit. It's not enough to get a couple of the elements right, because this is a system--all the elements need to be designed in concert with each other in order for it to work well. Paradoxically however, while tight fit is important, if it's too tight, it will be difficult to modify the design and system in response to the continuously emerging need for change.

Paying attention to the total design of the organization (not just its structure), needs to be as important as paying attention to customer satisfaction or financial results, for this is the source of organizational capability and effectiveness.

2. Innovative Reward Systems for the Changing Workplace by Thomas B. Wilson (McGraw-Hill, Inc., 1995)

As today's organizations seek to reduce unnecessary levels of management, delegate decision-making authority to the lowest possible level, and create teams with accountability for critical functions, they are creating conflict with traditional reward systems. Traditional thinking about reward systems focused on the external marketplace and what was necessary to be competitive in attracting and retaining people. In this book, Tom Wilson focuses the reward strategy on those actions needed to implement a firm's competitive strategy.

Wilson defines a reward system as any process within an organization that encourages, reinforces, or compensates people for taking a particular set of actions. It may be formal or informal, cash or non-cash, immediate or delayed. He says that organizations should develop and implement a behavioral framework for rewards. This involves rethinking the reward systems that currently exist.

The process entails viewing reward systems as supporters, if not drivers, of change, and modifying the concept that pay programs are just an infrastructure to the organization. It goes beyond making sure that people are getting paid, and includes understanding the messages that a program sends and the behaviors it reinforces. This approach also involves establishing a strategy for building and integrating a set of systems, programs, and practices that reinforces the behaviors necessary for the implementation of the organization's goals.

Wilson introduces the "Reward Smart" model, stating that effective reward systems are:

Specific - Performance measures and feedback systems need to define what people should do to contribute to the organization's success. There needs to be a clear line of sight between the results desired and the behaviors required to achieve them.

Meaningful - Rewards need to make people feel valued for their achievements from their own point of view.

Achievable - The desired actions or results need to be within the participants' control or influence, and attainable through reasonable effort.

Reliable - The system needs to be designed and operated in a fashion consistent with its purpose. Not only should rewards be contingent on the achievement of desired results, the whole process must be managed in a cost-effective manner.

Timely - Feedback, reinforcement, and rewards need to be provided as soon after the achievement and/or behaviors as possible. Wilson cites data showing that an examination of employee performance in relation to most annual incentive plans indicates that employees make a concerted effort to achieve goals toward the end of a performance period.

Wilson then goes on to show how to redesign base pay, variable/contingent pay, profit sharing/gain sharing, and special recognition programs in light of the SMART concepts to encourage the collaborative behaviors needed to serve the customer's needs better than competitors do. He suggests developing new approaches to performance management, and gives 10 guidelines for this new approach:

1. Recognize that there is a problem

2. Reformulate the purpose of the performance management process

3. Use objectives to focus activities; use goals to reinforce progress

4. Measure both results and behaviors

5. Provide continuous, real-time feedback

6. Make reinforcement a part of every day

7. Use performance reviews to celebrate and to learn

8. Make review meetings as frequent as necessary

9. Reward results and reinforce behaviors

10. Earn the right to skip annual performance appraisals

In addition to introducing the concepts, this book is filled with revealing case studies of companies that are successfully using this methodology. Helpful charts and diagrams clarify the core concepts and techniques. This book can help organizations create state-of-the-art reward and recognition systems that really work.

Websites and Other Resources we've found about this topic include:

www.amod2000.org

This is the URL for the Association for the Management of Organization Design, a nonprofit organization that promotes the knowledge and practice of organization design.

www.mnodn.org

This is the URL for the Minnesota Organization Development Network which maintains an enormous and comprehensive data base about all things having to do with OD. The only way we've been able to get to a specific area, however, is through this URL, followed by clicking on "Library," and then on the specific topic of interest. There is a lot of information available about compensation and rewards.

www.wilsongroup.com

This is the web site for the author of this issue's featured book review

www.newpay.com

This is the web site for Schuster-Zingheim Associates who are specialists in compensation and reward processes for high-involvement and high performance organizations.

READINGS:

Lawler, E.E.  Strategic pay: Aligning organizational strategies and pay systems. (1990). San Francisco: Jossey-Bass Publishers. 

This book looks at the impact of pay on organization strategy and effectiveness. Lawler is considered to be one of the leading innovators in the area of pay and reward systems.

Kohn, Alfie. No contest: The case against competition-why we lose in our race to win. (1986). Boston: Houghton-Mifflin Company.

Kohn is a seminal thinker on the inverse relationship between rewards of the carrot-and-stick variety and performance. His premise is that "while manipulating people with incentives seems to work in the short run, it is a strategy that ultimately fails and even does lasting harm." He believes that "our workplaces...will continue to decline until we begin to question our reliance on a theory of motivation derived from laboratory animals." www.alfiekohn.org

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