Variable Pay and Recognition

Ann Bares at the Compensation Force blog recently put her vote towards variable pay as the top reward strategy for 2009. Defining variable pay as incentive compensation, Ann says:

“I see incentives, when well-designed and well-implemented, as a form of partnership between employer and employee. If ever there was a time when all oars needed to be pulling in the same direction, it has to be now - so using incentives as a means of strengthening partnership seems like an idea whose time has more than arrived.

While I agree whole-heartedly with this sentiment in the sense that incentives include recognition and reward, I do take issue with some of the points in a scripted “charter” Ann also provides in the post on how to establish this partnership. In this charter Ann suggests refining the company goals to one to three objectives that are clearly communicated with all employees, measuring results based against targets for success for those goals, reminding each employee how “they can have an impact through the work they do,” and giving a cash award to employees if the targets are reached.

Ann had me cheering right up to that last part. I disagree a cash payout once targets are achieved as a whole is the best reward approach. As Ann said, every employee's effort impacts achievement of those individual goals. Similarly, every employee needs recognition for their efforts and validation that their work is appreciated — now more than ever.

To help employees deliver against targets through their own job functions, then those individual recognitions should be tied to a target achieved (or contributed to) with a specific message on how. This way employees begin to see how their individual efforts contribute to company success. This is by far the most positive and effective way of encouraging repetition of precisely those actions company leaders need from every employee to succeed in this recession.

Strategic recognition programs specifically can also chart those recognitions and reasons given to show which groups or individuals are contributing where and which areas may need more targeted intervention for the company to achieve the goals.

Do you see variable pay, pay for performance, recognition, or similar initiatives on the rise in your organization? What form are they taking? What’s the attitude toward such an approach? Share your thoughts in comments.