Is there such a thing as a fair and accurate way to set up a performance-related bonus scheme? We look at the problems for you

I am the systems administrator of an SME with a small, multi-disciplined team to back me up. To add another element to my staff retention strategy, I would like to introduce a performance-related bonus scheme. However, I am struggling to find an accurate measure of performance that will not be too difficult to administer. What framework for measuring performance would be accurate and fair for members of staff who perform many different tasks?

The solution

John Eary,

Head of skills source consultancy at NCC Services

Make it relevant to the business

It is essential that performance-related bonus schemes are relevant to the business, as well as being fair to the individual. For example, the achievement of a supplier qualification can be seen as objective because it is externally assessed. However, if the qualification does not have any real business importance to the organisation, and is seen purely as a career progression opportunity, paying a bonus may be viewed by other staff as an unjustified perk.

You need to consider how much bonus schemes contribute to staff retention. If the focus is too short term then staff may stay until they can collect their bonus and then leave for greener pastures. A number of year 2000 bonus schemes have suffered from this effect. The answer is to address the medium term issues and consider an element of roll-over between each bonus period.

Rather than woolly aims, which may be open to interpretation, firm objectives need to be set. These objectives need to be SMART (Specific, Measurable, Attainable, Relevant and Time-bound).

Finally, it is important to decide whether the priority is to develop teamwork and co-operation or to improve individual performance. This should be based on the requirements of the business and should be factored in when planning the bonus scheme.

Robert Lambert

Senior lecturer in management information systems, Cranfield School of Management

Establish a set of measures

Ultimately, there is only one set of measures of performance that really matters and that is the set of measures applied to your team by your users. Hence, you could consider aligning your performance-related bonus scheme to the service attributes as prioritised by your organisation. The first stage is to develop a clear understanding of the service attributes valued by your "internal customers". Our research has shown that these attributes typically include "hard measures" such as accuracy, reliability, and integration etc. but that these were often outweighed by "soft measures' such as responsiveness of staff, their business understanding and user involvement.

Having identified the priorities of your users, then it is critical to agree with your team how you will achieve these and the mechanisms for capturing performance. The hard measures can be linked to your service outputs and any service level agreements you may have. The softer measures can monitored through regular interviews and surveys. This can provide clarity and focus for your team as well as potentially improving the business's perceptions of your group. Your role in this is vital, not only in identifying the attributes valued by your users but in supporting and enabling your staff to achieve them.

Roger Marshall

Elite

It is an impossible dream

A personal performance bonus scheme that is accurate, fair, not too difficult to administer and can be applied to a small multi-disciplined IT support team? It is an impossible dream, one whose objectives are beyond the ingenuity of human beings to deliver. You will end up either abusing the scheme in order to overcome the anomalies it throws up or upsetting more staff than you positively motivate, probably both.

If you need to pay more in order to retain staff, then pay more. If HR tells you that would upset the company pay scales, tell them you'll pay it as a market supplement rather than a grade increase. If you have some money to put into a bonus scheme and would like to pay it against the achievement of team objectives then fine, but make it a team scheme with everybody getting the same award (the same percentage that is, scaled against their overall salary). That way there should be no friction within the team, but you will still have the problem of determining what the actual award will be.

Mike Portlock

Impact

Base it on team performance

Introducing performance-related bonus schemes into organisations where individuals perform a variety of tasks is never easy. Personalising the performance-related bonus scheme can result in individuals seeking to focus on the tasks where they obtain greatest personal gain at the expense of what is best for the organisation or indeed the team itself.

Accordingly, in such circumstances, it is probably better to base any performance-related benefit against the performance of the team as a whole. Key measures here need to relate team performance to the objectives of the organisation. This is difficult itself if the department's objectives and those of the organisation are not closely aligned and well defined. Customer satisfaction measures are useful if users can be persuaded to participate objectively and in a positive fashion but keeping these going as a basis for bonus payments can again be problematic.

In many organisations the best solution is to participate in a company-wide scheme and this can be particularly appropriate with SME's where it is easier to focus all employees performance to company goals than in larger organisations.

David Taylor

Certus

Use training and let your staff 'play'

The introduction of performance-related bonus schemes for service-related departments is notoriously difficult, particularly with small multi-disciplined teams. One of the biggest problems is that such schemes tend to be based on quantitative measures, or SLAs, while your customers will be judging your performance on qualitative measures such as, "How do we feel about the quality, or level, of service delivered?" If your organisation already has a cash-based incentive scheme for other departments, then you could challenge any assumption that this should be restricted to just those departments.

Personally, I would challenge the assumption that a scheme needs to be cash oriented. In my experience you will do wonders for both your staff and your organisation through two measures, which I accept you may already be using. The first is relevant training - relevant to the needs of the business, but also relevant and tailored to the personal development needs of each member of your team. The second is by providing access and exposure to new technology. Encouraging this permission to "play" demonstrates trust, appeals to the technical side of your staff, results in innovative solutions for your organisation, and is simple to administer.

Many organisations have annual reviews to identify the training needs of their staff but development does not have an explicit link to pay. It is more impartial to set objectives that lead to improvements in business performance and establish a link between training and bonuses to achieve these.

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This was first published in May 2000

 

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