Compensation Versus Performance - Who will win this battle?

Employee Engagement, Employee Relations, Rewards and Recognition

Once there was a concept of life-time job. People used to join one organization and would work there for rest of their life. They would grow with company. Loyalty and relation were given more preference than anything else. Performance, compensation, and growth were important but not as important as emotions and brotherhood. However, now things have changed. More so in last THREE decades. There seems to be a tussle, a kind of tug of war, between performance and compensation. Loyalty, emotions and relations appear like things of ancient time. For an employee, an employer is as good as his last increment; while for an employer, an employee is as good as his performance in last quarter. Both can replace one another at any time and as many times during their life. Who is going to win this war? Will there be any winner? It is difficult to say.

Employees don’t want to link their compensation and growth with their performance.  Every year they expect certain percentage of increment. They must get promotion every couple of years. And this should not be linked to their performance. They have irrational comparisons of their compensation. They compare their salaries with their colleagues across functions and with their peers across industries. They are not willing to buy concepts of educational backgrounds, relevant experiences and size or revenue of organization.

Following factors can influence your compensation in an organization –

  1. Relevant experience – Your total experience is irrelevant. What matters the most is your relevant experience in given role and industry type.
  2. Education qualification and Grading of College/Institute – It matters a lot. There is basic qualification requirement for each role. Grading of college or institute implies the quality of training, grooming and knowledge you might have received and hence plays an important role. Same holds true for mode of education – full-time or distance learning.
  3. Organization Type and Revenue of Organization – A start-up, matured and multi-national organization will follow different compensation structures. Revenue of company also plays an important role. One cannot compare compensation of one role in a 10 million USD company with a 100 million USD company. That is insanecomparison.
  4. Internal Equity – There cannot be any comparison between same job titles in two different functions. For example, internal equity calls for same salary range for two sales managers in same city. However, one cannot compare salaries of Sales Manager with Production Manager.

On other hand, employers don’t want to talk about compensation and benefits in isolation. Growth and compensation must be linked with job responsibilities and accountabilities. Loyalty alone is not sufficient. Organizations require loyalty with consistent track of performance to help you grow. You cannot move to next level just because you have spent certain numbers of years in one position or role. In schools and colleges, getting 60% marks is considered as first class and getting above 75% is distinction. However, this is not true in corporate world. You must score at least 75% in your annual assessment to be considered for any increment. You must consistently score above 90% in your annual assessment for at least THREE years to be considered for promotion to next level in hierarchy. Irrespective of your score in annual assessment, as a standard industry practice, you shall be classified as High Performer, Average Performer and Low Performer in the ratio of 20:60:20, which eventually implies – Must Retain, Try to Retain and Let Go.

Following factors can influence your growth in an organization –

  1. Career Planning and Competency Development – Employees are responsible for their own career planning as well as developing necessary skills and competencies required to move up the hierarchy. You know what you want in your life. You know what are your strengths, weaknesses and constraints. It is not the responsibility of an organization to plan or develop your career. Organization does arrange for development programs for employees, however, those programs are planned as per growth aspirations of the organization.
  2. Job Descriptions and Skill requirement – Organizations shall prepare job descriptions and skill and requirements for each role. These shall be made available to employees for them to know where they stand in the organization and what they need to do to move up in the hierarchy.
  3. Assessment Centre – There is a need to have assessment centres in organizations to assess readiness and competencies of employees required to move to next level in hierarchy. Nothing can be more painful than losing an employee to the market who was ready but not identified. 
  4. What are you looking for?– Employees shall be very clear about what they want. They must not look for right things at right places. Start-up companies provide an opportunity to create something large from scratch; while matured MNC’s gives an opportunity to expand your horizons. In start-up’s, financials are big constraints; while in matured MNC’s, bureaucracy can be a hurdle for your vertical growth. Final choice is yours.
  5. Risk taking abilities – Relocation can be a big hurdle in your career growth. Organizations might give you the kind of growth that you need but you can squander that opportunity, if you are not willing to relocate. You must be willing to take risks.
  6. Job Satisfaction – It is the responsibility of organization to give you clear job description, tool to perform your job efficiently and set non-discriminatory performance management system, however, it is not the responsibility to organization to satisfy you. Organization can help you live a good lifestyle based on your capabilities and performance but they can do nothing to satisfy your greed.

There seems to be this chicken and egg type of situation. Employees say, “Give us chance. Give us role and compensation and we will prove our abilities”. While the stand of organizations is, “Develop your skills and competencies. Prove your capabilities.Deserve it before you claim it. We will give you growth and development”. Bike cannot move forward while on stand. Similarly, you cannot move forward, if you will not improve capabilities and competencies.

Over the period of time, one thing that has become very clear that relationship development and wealth creation are two different things. Within relationships, there is a wide gap between personal (emotional) and professional relationships. One must understand, respect and appreciate difference between the two. No one does any business to develop personal relations with employees.

Compensation is nothing more than sequence of numbers and irrespective of what you get you will never be satisfied. On the other hand, performance can be described as continuous improvement towards excellence and hence, no matter what you do there will always be scope for improvement. I am not sure who will win the war of performance versus compensation but I have made an attempt to make conceptual clarification. Self-awareness and communication are two tools that can help bridge this gap.

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