Productivity metrics don’t feature heavily enough on performance scorecards and many organisations are unable to truly define, measure and track productivity at the individual level, according to a global consulting firm.
As such, organisations often find it easier to use traditional outcome based-financial measures as a proxy for workforce productivity, said Jason White, principal at Mercer.
Where performance based pay programs are in place for operational and other frontline roles, Mercer research has shown that 68 per cent per cent of organisations still use traditional financial measures of revenue, sales and profit to determine the eligibility and the size of any incentive paid.
However, only 41 per cent have process improvement as a scorecard measure for calculating incentives.
Furthermore, Mercer’s 2013 Australian Benefits Review (ABR) also found that only 58 per cent of organisations offer incentive based pay to operations and other frontline roles, compared to 70 per cent per cent of professional roles.
“As a result, a large proportion of the workforce that contribute directly to levels of productivity are not participating in a performance based pay programs,” said White.
Behind falling productivity
Over the past 20 years, he said Australia has experienced a long period of economic growth and prosperity. “Over this same period we have seen consistently high wage increases, relative to other OECD countries, despite falling levels productivity improvement,” he said.
“This has been partly driven by an entitlement culture that has generously provided year on year fixed pay increases without any direct connection to productivity or performance. In some cases, increases may even be negotiated years in advance as part of enterprise or workplace agreements.
“As a result, as Australia enters a period of slower, lower growth, we have become a relatively high wage cost nation.”
Australia only just scraped into the top 20 countries in a recent report, developed by the World Economic Forum in collaboration with Mercer, which measures countries’ ability to develop an effective workforce designed for economic success.
The report ranked 122 countries representing more than 90 per cent of the world’s population. Each country was measured against 51 factors in four distinct categories: education; health and wellness; workforce and employment; and enabling environment. Australia came in at 19th overall, 17th within OECD countries and 4th within the Asia Pacific region.
Although the nation ranked 19th overall for the workforce and employment pillar, Australia ranked 84th out of 122 on workforce participation for those aged 65 and over and 96th for pay related to productivity. Australia is also lagging significantly behind comparable economies such as Singapore (3), the UK (9) and the US (10) in relation to pay related productivity.
“Our incredibly low rankings in relation to keeping older workers in the workforce longer and the cost of reducing relative productivity are serious red flags for Australian employers and the government, said, Garry Adams, leader of Mercer’s talent business, Pacific.
“Australia’s inclusion in the top twenty is encouraging but there is more work to do if we are to improve our global standing. Traditional thinking about the workplace – including how jobs, rewards and benefits and retirement are defined – should be continually challenged.”
Understanding and addressing challenges related to human capital is fundamental to short term stability and long term growth for both organisations and nations, according to Adams, who said a case in point is the need for employers to harness the skills and experience of their workers aged 55 and older to drive increased productivity.
White said the first step is to develop in boosting productivity is to come up with a clear definition of what workforce productivity means at an organisation, team and individual level, and create more opportunities for employees that have the greatest impact on productivity, to participate in performance based pay programs.
He also suggested looking for opportunities to use more “absolute” measures of productivity and performance in pay programs vs “bundled” performance rating scores.
“Build a culture of performance based pay vs. entitlement driven pay – start by creating greater differentiation in pay outcomes for high and low performers,” he said.
5 steps to improving workforce productivity
Jason White, principal at Mercer, said there are five steps HR professionals can take to help improve workforce productivity:
- Apply greater governance and control over the design and implementation of performance based pay programs across the business
- Educate managers and the workforce on what productivity means for the business and how they can contribute to improvement
- Review the efficiency and effectiveness of performance based pay programs annually – test the connection back to key business and productivity outcomes
- Focus on improving manager capability around the implementation and communication of performance based pay programs – focus on target and goal setting practices
- Leverage technology and online portals to communicate and monitor total rewards programs to maximise the motivational impact of performance based pay on employees