Yesterday, we explored the factors behind the rise of comprehensive variable pay programs—and the types of cost savings you can expect. Today, John A. Rubino of Rubino Consulting Services explains who (and what) can make the difference between variable pay success and failure.
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It’s All About the Middle Managers
Middle managers will make or break your variable pay program, Rubino says.
You should “involve managers in variable pay program design and performance criteria identification,” says Rubino, as well as build trust and get buy-in from managers and employees through effective training and communication
Getting buy-in is easier if you effectively convey the benefits of a well-designed and executed variable pay program, which can positively affect the organization’s bottom line in various ways and also improve:
- Morale
- Productivity
- Quality
- Customer service
- On-time performance
- Work methods
- And more
Managed communication is a must, Rubino emphasizes. The 3 major objectives are:
- Ensure understanding.
- Get buy-in/change perceptions.
- Motivate the right behaviors.
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Comprehensive Variable Pay: Critical Success Factors
Rubino says organizational culture and values must support a performance/reward framework: instilling a “sales mentality,” in other words. Additionally:
- Compensation policies and programs must be aligned with the organization’s strategic objectives.
- Senior management must allow the variable pay program to work.
- “Pay by example” should be at the top of the organization.
- Pay must be both internally equitable and externally competitive.
- The variable pay program must deliver what is promised, on time and fairly.
- Plan design should guard against “windfall” payments.
- Performance criteria must be discernible, valid, and understandable.
- Variable payouts must be aligned with performance criteria achievement.
- Variable opportunities must be perceived as sufficiently valuable to motivate performance.
- Timing of payout allocations should be as close as possible to the qualifying event.
If designed and implemented properly, variable payouts to employees will yield “slices from an expanding financial pie,” Rubino says.
No matter what pay programs and policies you research and implement, compensation and benefits are never easy. “Maintain internal equity and external competitiveness, with benefits and compensation, and control turnover, but still meet management’s demands for lowered costs.” Sound familiar?
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