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New Ways of Setting Rewards: The Beyond Budgeting Model

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    RewardNew Ways of Setting Rewards: The Beyond Budgeting Model Monetary compensation for performance has been seen in the past as the ideal way to motivate employees within a company. This was based solely on setting up goals and rewarding those who achieved them. Typically the higher up the organizational chart you sat, the larger the bonus. This study found that “Individual Performance” measures discouraged teamwork, created a finger pointing work environment, and/or incentives were not fairly disbursed throughout the organization.

    The article explains how to avoid traditional budgeting and adapt a more flexible type of planning process. The planning process has been taken down to the bottom level of the food chain, so to speak. The employees who are directly involved with the products and services being passed on to the consumer are involved with establishing the goals and policies which lead to incentives within their department/branch. Several incentive models that have been successfully implemented in companies, specifically: Groupe Bull & Handelsbanken, are reviewed.

    Interesting enough, not all rewards are monetary. One of the most important concepts in my opinion was the idea that money doesn’t motivate employees. Involvement does. By allowing the employees who are striving to reach a target actually be involved in determining what that target is, management is empowering those people. This is going to make them feel more valuable to the company. It is going to create an atmosphere where people are going to work together to reach a common point.

    If that goal is achieved, everyone is rewarded equally. If that goal is not met, there is not a blame placed on one person or a group of individuals, the whole team is held accountable. If the management style chooses to create this “team” environment, at that point of not achieving the goal, the team will need to work together to determine what performance hindered their efforts. Then establish an action plan on how to work through or avoid that interference altogether during the next timeframe.

    These will not only help the team become more coherent; a commitment to the betterment of the company evolves naturally. According to the article, management needs to develop clear, simple goals within the company. The more complicated the performance measurements, the harder it is for an employee to follow. This makes that employee lose interest in achieving the goal. Wachovia is a fine example of complicating individual sales results. The scorecards not only count dollars & units, but once that goal is achieved then it’s weighted. This is only one part of the scorecard.

    There are other variables that are interjected (service measurements, previous months score, total branch performance, etc) into what your final incentive for that month would end up being. It was very difficult to follow, but strongly reviewed monthly. Typically no payout was achieved. This naturally led to a “lack of interest” in achieving (what was almost impossible to achieve) goals. There are different ways to link rewards and performance which are suggested by the cases reviewed in the article. The first was a performance plan based on an established range of Key Performance Indicators (KPI’s).

    Typically these indicators result in profit, growth, and stability within the company. These numbers are compared with market competitors. If management is satisfied with the results, bonuses are disbursed. This seems to be a fair way to reward your employees. Not only are the numbers compared with the competition, but management has their own expectations. This plan seems especially fair in the economic environment we are currently experiencing. Currently a retailer may not be having the best year in their history; however that doesn’t mean employees are not putting forth an effort.

    Management can compare their established retailer with the competitors’ in the market to see if they are keeping that competitive edge, or possibly see if they created MORE profits then the market competitors. Employees need to be rewarded for maintaining even in a down time. The second method of reward is based on individuals receiving bonus packages related to the performance of different departments. This creates a cohesive plan with the company structure. Within the department a target is set. The department is held accountable for their results.

    If target isn’t achieved, the department is given a second opportunity. If still not achieved, adjustments are made through internal transfers, or pink slips. Profit Sharing is the last alternative to the fixed performance contracts. Through the actions, and efficiency of each department the bank or other institution grows and becomes more profitable. This is rewarded to employees through profit sharing. Employees will feel like they are working for themselves in a sense since they are shareholders. The more efficient and correct they perform their duties, the better the company does allowing growth in their investment.

    It’s a motivator. The employee wants to out-perform the competition. Regardless of what method or combination of methods a company chooses to adopt, one thing is certain, employees have to feel valued and engaged in the decision making. Management needs to be supportive to efforts made by the front line teams, and performance measures have to be fairly disbursed. There is not possible way to completely ignore the numbers, but the thought process that the numbers drive performance is disappearing. Performance will drive the numbers to where your company wants to be.

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