Thursday, September 3, 2009

Bonuses, Payraises, Promotions and Other Unpleasentries

What can possibly be unpleasant about a bonus or a pay hike or a promotion? To the recipient, very little. Everyone likes a pat on the back, and if it’s ‘tangible,’ all the better. But if you are the one who identifies who gets a bonus, then you are also the ‘guy’ who identifies who doesn’t get a bonus (or a pay raise, or a promotion), and telling people why they ‘didn’t make the cut’ is one of the more difficult and unpleasant duties of being a leader.

No matter what system you use, no matter how you go about these issues, eventually, you still must come face to face with the guy who didn’t get the promotion which he certainly believes he deserved. So, what can you do to ease this process?

The answer is both difficult and simple: Communicate. Communicate early and often. There are, in fact, four facets of communication that you need to address.

One – Communicate - Organization wide communication that tells your vision of performance. This sets the stage for more specific communication that will follow by setting overall standards and showing how those standards fit into the organization as a whole. In short, you need an organizational performance statement: this is what is expected out of this department, this division, this plant, etc., over the next year. Communicate this performance message to the entire organization regularly enough that everyone understands it.

Two – Guidelines for individuals. Have clear work-place performance guidelines: what is the standard for performance (also, what is unacceptable); how pay increases, bonuses and promotions will be distributed; if you have any ‘perks,’ how these are allotted also should be clearly spelled out. This would include such items as special parking places, executive dining rooms, etc.

My own experience is that most perks, except in very restricted forms, normally have a negative impact on the organization as a whole, while providing only a minor benefit to the recipient. For example, parking; either give everyone an assigned parking space, based on some clear criteria for assigning where (longevity moves you closer to the front door, for example), or don’t have ANY assigned parking. Most perks eventually devolve into playing favorites; and whether that is true or not, that is how most people perceive them.

At the same time, keep the guidelines simple – spend some time with key advisors, get feedback from your people, and turn this into a positive experience for everyone. Don’t make the guidelines complex or the process of understanding and following them onerous, nor should you turn this into a long, tortured Byzantine requirements list.

It is also best to make these guidelines demanding. What you must avoid is setting standards that allow everyone to be ‘4.0’ performers. In fact, the best system would make it impossible for anyone to have a ‘perfect score,’ which is not to say that any performance system must have a ‘scorecard’ of some sort. Setting very high standards can be a very powerful motivator, and at the same time allows people to avoid the frustration of seeking to be ‘perfect.’

Three – Counseling – There needs to be regular Counseling. Establish a formal process to provide performance reviews to everyone several times throughout the year. Personally, I think it needs to be at least quarterly. People should not only know how well they are doing, they need to have enough awareness that they can respond to the appraisal and make corrections and not ‘lose’ a year. The more frequent the counseling, the easier it becomes and the less time will be spent trying to finesse these meetings. (Time must still be committed to preparing for these meetings, but as frequency drops the normal response is to make these meetings very formal and guarded. That is what you are trying to avoid.)

There also needs to be an informal counseling mechanism, that is, one that is not on anyone’s calendar, but allows you as the manager to do your job. Remember, the point of counseling is not to scare people or identify someone so you can fire them; the point is to improve both individual performance and overall organizational performance. Accordingly, you, and your managers, need to make a point of frequent review of the performance of those who work for you and when you notice changes, provide comment. Thus, if one of your people is showing a marked improvement in performance, it should be noted (and if it is sustained, a public notice is best). If there is a decrease in performance, you should provide counseling as soon as possible, in private.

Fourth – Feedback – there must be a Feedback mechanism, a process that provides an avenue of communication from the people of your organization ‘up’ the chain. This allows them to tell you how well they think they are doing, and how well they think the organization is doing. The feedback mechanism also allows them to voice frustrations if they feel that performance is not being properly evaluated.

Feedback mechanisms also should allow you as the boss to better identify managers who are either positively or negatively affecting performance. To facilitate this, feedback needs to be reviewed not only by immediate supervisors but also by at least the next echelon and perhaps two echelons. You also need to solicit feedback on how You, the boss, are doing. This is hard; people will be reticent to speak the truth, or will lay it on thick – or will vent – you need to do this frequently enough that you get beyond most of this, and then – write it down and review comments from lots of folks and see what stands out – good and bad. You will find kernels of truth in there.

Several other traits to aim for include:

Clarity. Keep clear, simple records of counseling and evaluations. If you need to replace a manager tomorrow, the new ‘guy’ needs to be able to understand what is happening and why.

Fairness. You need to not only be fair, you need to appear to be fair. Take a close look at what you are doing and how you are doing it and adjust your procedures until everyone trusts the system. This will pay big dividends in the end.

Transparency. Be transparent. There is no worse trait of any system of promotion or awarding of bonuses or position then one that keeps everything a mystery. Not only does it eventually lead everyone to believe that there is a cabal, an in crowd, it also prevents many people from doing what is necessary to improve their own performance. There are organizations that routinely have promotion processes that are confidential and when someone is promoted very quickly or when someone suddenly fails to be promoted when everyone expected it, there is no specific explanation. Instead, vague generalities are issued and people are left to guess.

To avoid that, insist on transparency: identify the selection criteria as part of overall corporate policy, and when selections need to be made to promote people, make certain that you are using those criteria. If you need to change those criteria – tell everyone. And, when selections are made it should be clear that those promoted fit the selection criteria.

Limits. Finally, it should be obvious, given the level of effort involved in a sound counseling and evaluation process, that there is a practical limit to how many people you can evaluate. This is another limit on span of control. If you had 50 people working directly for you and you were trying to evaluate their performance and approve bonuses and make recommendations for promotions for all 50, and you were being diligent in making sure that you were giving them regular feedback and counseling, etc., you would find you don’t have enough time in the week to do everything you need to do. If you are performing the observations, evaluations and assessments completely on your own, it will be difficult to supervise more than a dozen people and do a thorough job.

Proper evaluations and recommendations for promotions, etc., require close observation. In some jobs with a high degree of routine, a simple assembly line perhaps, it may be possible to thoroughly supervise up to 20 people directly, with no assistance. But if the assembly line is even the least bit complex and requires regular decision-making by the workers this number will quickly fall.* As the tasks of the workforce increase in complexity, the task of making accurate assessments will force you to continually reduce the number of people being supervised by any one person. Experience will help you set those limits. Once you know those limits, you need to resist the temptation to exceed that number.

Next, we’ll discuss how promotions and pay increases ought to be implemented.

* Some service industries reward personnel based on simple criteria, total sales, for example. These systems can work, but they also produce a work force that is mercenary in the strictest sense of the word. There is no motivation for the organization as a whole, and overall organizational goals or department goals are meaningless.


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