There are two fundamental considerations that organisations need to take into account to develop rewards that will incentivise staff to pursue excellence, establish a strong external reputation for ethical business practice, and build a healthy internal workplace culture, writes Joydeep Hor
The recent Royal Commission into the Banking and Financial Services industry revealed some concerning practices, chief among them, business development strategies that involved the exploitation of vulnerable customers. In many cases, these strategies were not authorised by the banks themselves, at least, not expressly. But the banks’ remuneration and reward strategies may have been complicit in encouraging these kinds of practices. If you pay staff on the basis of how much new business they sign up, without too much scrutiny of the ethics involved in dealing with those new customers, it is unsurprising that you invite the risk of unscrupulous practice.
This is not a new realisation. Similar risks were highlighted in the wake of the global financial crisis, when it was discovered that some apparently profitable businesses were not so sound as they appeared. Remuneration strategies for senior executives that provided share options with short term vesting was found (in some notorious cases, such as Sunbeam and Enron) to have driven a focus on short term profit reporting, enabled by some dubious accounting practices designed to inflate short term profitability figures. (See an illuminating article on the Al Dunlap story by Jennifer Hill, Deconstructing Sunbeam – Contemporary Issues in Corporate Governance published in the Cincinnati Law Review in 1999.)
“The banks’ remuneration and reward strategies may have been complicit in encouraging these kinds of practices”
Reward systems that permit and perversely encourage this kind of unscrupulous behaviour often also promote toxically hyper-competitive workplace cultures, which may also be rife with bullying, and serious work health and safety problems.
So how do you develop rewards that will incentivise staff to pursue excellence, not only in building the profitability of your business, but in establishing a strong external reputation for ethical business practice, and a healthy internal workplace culture?
Reward the behaviour you value
While it is important to meet the market with financial remuneration, don’t expect too much loyalty from paying annual bonuses. People quickly adapt to receiving more money. The risk of a bonus system based only on dollars is that staff will quickly acclimatise to a certain level of bonus and will expect it each year, without any real gratitude.
Instead, consider rewards that encourage staff to develop a loyalty to the enterprise. Provide paid leave and expenses to allow staff to attend professional development activities, such as conferences where they will extend their (and your) networks and become exposed to new ideas. Nominate your staff for industry and professional awards, and encourage the whole team to celebrate their achievements. Consider supporting their endeavours to pursue educational activities by providing some paid study leave. In supporting your staff to improve or broaden their educational qualifications, you also raise the competency level of your team. This may not necessarily mean years of extra study.
There are many excellent, practically focused short courses available. In this context, I consider it one of the most rewarding experiences of my own career and life to have funded my own participation at Harvard Business School’s Owner-President Management Program.
“In the end, your reward system will influence the kind of people you employ, and the kind of people they become”
Recognise the whole person
Rewards should encourage and foster a commitment to team success. Consider allocating some of your profit to the kinds of sponsorship activities that appeal to your people’s interests – sports, theatre and arts, charitable organisations – and allow all members of your team a turn at attending sponsorship events on behalf of your firm. Sponsorship activities encourage your staff to see that being involved in your business means participating in a wider, richer world.
Be willing to consider flexible working arrangements for staff who have other commitments, and not only those whose requests you are obliged by law to consider (such as people with carer responsibilities and disabilities). If your work patterns can accommodate it, be willing to consider the kind of flexibility that will allow a team member with sporting, musical or other interests to keep up their practice. Work-life harmony can also be good for business if it means that your staff arrive at work invigorated and happy.
In the end, your reward system will influence the kind of people you employ, and the kind of people they become. If you are looking to attract committed, ethical staff who enjoy being part of a high functioning team, then focusing your reward system only on cut-throat competitions for extra dollars is not going to take you there.