It is hard to turn on the television, pick up a newspaper or magazine, or power up a computer without seeing a flood of stories on rising unemployment, the credit crisis or bailout packages. These are the signs of a down economy, or specifically, a recession.
This is a cyclical process. Employees are connected with job security, so they are afraid to spend money. Because they don't spend money, organizations aren't turning profits. Because organizations aren't turning profits, some are cutting head counts, which starts the process over again, compounding employees' fears about job security.
However, during economic downturns, not every employee gets trapped in the cycle. Smart organizations will use the downturn to make strategic hires. And they will look for opportunities to recruit key talent from vulnerable competitors.
Performer Hierarchy
Employees are the backbone of any organization. Employees come up with ideas, build and sell products, work directly with internal and external customers and represent the organization. Within organizations, there is a hierarchy of performers: high performers, average performers and poor performers.
In most cases, the high performers are the top producers, the idea generators and potentially the top leaders, though not necessarily managers, in the organization. High performers are the employees who will lead the organization in the future.
These high-performing employees are vital to organizational survival, especially in bad economies. They are also in high demand in the labor pool. In order for organizations to thrive, they need to ensure they are retaining their own "A" players, as well as attracting new ones to keep the talent pipeline full. This push/pull of labor ignites a war for talent at a time when recruiting would seem to have fallen to the bottom of many talent management priority lists.
Pay Cuts for Performance?
During down economies, it is vital for organizations to determine which employees are key to organizational survival and ensure those employees are motivated to stay. One of the strongest motivators for attraction and retention is compensation. Unfortunately, during economic downturns, organizations have less revenue and, therefore, decreased pay for performance dollars.
Pay for performance can be defined as the link between pay, in whole or in part, to individual, group or organizational performance. If the individual, group or organization does well, pay increases, and vice versa. As organizations bring in less revenue, the amount they can spend on pay-for-performance dollars diminishes.
Some organizations try to spread the money so that each employee gets some additional pay. This is commonly called the "peanut-butter approach." Spreading the money to all employees, however, can be a de-motivator for high performers, especially when they know other employees have contributed less.
Equal distribution of limited pay-for-performance dollars might seem like a good idea, but the move could backfire. Just as talent managers need to encourage and reward high performers during good times, an organization is especially dependent on top performers to pull the organization through during down times.
For those who are thinking, "Well, worrying about how to best allocate merit increases is a nice problem to have, especially since these days, the reality is more about pay cuts."
Shouldn't the concept of pay for performance apply to salary reductions in the same way they do to salary increases? Instead of simply cutting pay a flat percentage across the board, should HR be more strategic about it by cutting the low performers more than the high performers?
This has become a hot topic at HR watercoolers and opinions on the matter vary widely, but one thing is certain. Pay-for-performance differentiation can send a strong message to employees and, as such, should be used wisely and well.
[About the Author: Jason C. Kovac, CCP, CBP, is a practice leader for WorldatWork and the author of three books including Elements of Base Pay Administration.]
This is a cyclical process. Employees are connected with job security, so they are afraid to spend money. Because they don't spend money, organizations aren't turning profits. Because organizations aren't turning profits, some are cutting head counts, which starts the process over again, compounding employees' fears about job security.
However, during economic downturns, not every employee gets trapped in the cycle. Smart organizations will use the downturn to make strategic hires. And they will look for opportunities to recruit key talent from vulnerable competitors.
Performer Hierarchy
Employees are the backbone of any organization. Employees come up with ideas, build and sell products, work directly with internal and external customers and represent the organization. Within organizations, there is a hierarchy of performers: high performers, average performers and poor performers.
In most cases, the high performers are the top producers, the idea generators and potentially the top leaders, though not necessarily managers, in the organization. High performers are the employees who will lead the organization in the future.
These high-performing employees are vital to organizational survival, especially in bad economies. They are also in high demand in the labor pool. In order for organizations to thrive, they need to ensure they are retaining their own "A" players, as well as attracting new ones to keep the talent pipeline full. This push/pull of labor ignites a war for talent at a time when recruiting would seem to have fallen to the bottom of many talent management priority lists.
Pay Cuts for Performance?
During down economies, it is vital for organizations to determine which employees are key to organizational survival and ensure those employees are motivated to stay. One of the strongest motivators for attraction and retention is compensation. Unfortunately, during economic downturns, organizations have less revenue and, therefore, decreased pay for performance dollars.
Pay for performance can be defined as the link between pay, in whole or in part, to individual, group or organizational performance. If the individual, group or organization does well, pay increases, and vice versa. As organizations bring in less revenue, the amount they can spend on pay-for-performance dollars diminishes.
Some organizations try to spread the money so that each employee gets some additional pay. This is commonly called the "peanut-butter approach." Spreading the money to all employees, however, can be a de-motivator for high performers, especially when they know other employees have contributed less.
Equal distribution of limited pay-for-performance dollars might seem like a good idea, but the move could backfire. Just as talent managers need to encourage and reward high performers during good times, an organization is especially dependent on top performers to pull the organization through during down times.
For those who are thinking, "Well, worrying about how to best allocate merit increases is a nice problem to have, especially since these days, the reality is more about pay cuts."
Shouldn't the concept of pay for performance apply to salary reductions in the same way they do to salary increases? Instead of simply cutting pay a flat percentage across the board, should HR be more strategic about it by cutting the low performers more than the high performers?
This has become a hot topic at HR watercoolers and opinions on the matter vary widely, but one thing is certain. Pay-for-performance differentiation can send a strong message to employees and, as such, should be used wisely and well.
[About the Author: Jason C. Kovac, CCP, CBP, is a practice leader for WorldatWork and the author of three books including Elements of Base Pay Administration.]
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