The Key to Increased Employee Performance is a Clear Performance Framework

Most company leaders would like to see their employees perform at a high level. And many are frustrated that performance standards are not more consistently met. However, few company heads address the issue on enough of a comprehensive basis to move the needle on how their people perform.?

Organizations can adjust incentive plan metrics and adopt the latest performance management system but until they consistently operate under a clear performance framework, their attempts at improving the results their people produce will be frustrated.

An organization’s performance framework should address three connected company dimensions: the business framework, the compensation framework and the talent framework. ?These are separate but interdependent parts of an organization’s strategy and operations. ?Combined, they act as performance “connective tissue,” ensuring each area of focus is constructed to enhance and not diminish the others. ?Any organization expecting to see improved performance will need each element of the overall framework to be working properly and be effectively linked with its reliant partners. ?So let’s examine what is required in each of these three areas.

Business Framework?

In this first category, enterprise leaders must envision the future company, define its revenue engine and standards and then identify the roles needed to execute its strategy and business model. That analysis should include the following:

1.Define the company’s growth expectations (vision). ?Here company leadership wants to clearly express key outcomes that need to be achieved in the future in quantifiable terms. ?A financial model that looks at a one to 10-year horizon in terms of base, target (or budget) and superior levels of growth is recommended. ?The model should also project what happens to shareholder value at each level of performance.

2.Define the business model and strategy. ?This step involves a clear articulation of two separate but related issues. ?The business model is how the company drives revenue and makes money. ?Its strategy is how it competes in the marketplace with that model. ?Business leaders need to identify where the leverage points are in each and how they can be maximized. This should help determine the growth opportunities that will lead to fulfillment of the financial vision modeled in step one.

3.Identify roles and expectations. ?With the first two elements established, the company should next think about the specific skill sets that will be needed to drive the business model and strategy. ?Those skill sets define the kinds of roles and expectations that are associated with the outcomes the company must achieve if the “future company” is to be realized. ?Expectations should be articulated in the form of “success” criteria that relate to the fulfillment of each role.

Compensation Framework

With the business framework in place, the compensation framework is more naturally constructed. ?The pay structure should help align roles and expectations with the business vision, model and strategy by framing the financial partnership that will exist between ownership and the workforce. ?It should include the following:

1.Identify a Pay Philosophy. ?This is a written statement that acts as a kind of compensation “constitution” for the business. ?It should define what the company is willing to “pay for”—and presupposes the organization has defined what value creation means in that business, so it can also articulate its belief about how and with whom it should be shared. ?The pay philosophy is also where a company addresses whether it’s going to adopt an expansive or selective approach to structuring rewards for key producers. ?Expansive essentially means everyone will be treated the same. ?A selective approach recognizes there are key producers and contributors in the organization who should be treated differently from others in terms of earnings potential and the level of participation in value sharing.

?2.Engineer Pay Strategies that Reflect the Philosophy. ?This means a company will pay attention to both its salary structure and value sharing—and strive to achieve an effective balance between the two. ?Likewise, it will build both short and long-term incentive plans (value sharing arrangements) that reflect the kind of financial partnership it believes it should build with its people. ?To do so, it must pay attention to both the structural and the mindset impact of their plans. ?The structure addresses who should be in the plan, what kind of plan it should be, how much it should pay out and so forth. ?Mindset has to do with whether a plan will build a greater sense of stewardship about ownership priorities and whether it will enable a higher level of commitment and engagement on the part of employees.

3.Adopt a Total Rewards Approach. ?This simply means that an organization recognizes that there must be more to its value proposition than financial rewards. ?The components of a Total Rewards approach were identified earlier.

Talent Framework

The final piece in our performance framework is talent. ?This level of planning has to do with identifying existing key producers and then pinpointing potential talent gaps. ?It also includes communicating expectations and rewards to both your current cadre of talent and those you are recruiting—then marketing a compelling future to those people. ?

1. Identify Key Producers. ?These are individuals who are most responsible for helping the company consistently achieve the “success” standards it has identified (see business framework). ?A business needs to be able to recognize the difference between this kind of contributor and the rest of its workforce. ?It should also be able to identify the skill sets of those in this category and how they compare with the expertise needed to achieve the growth goals the company spelled out in its business framework.

2.Identify Talent “Gaps.” Step one should make it easier to identify where the company falls short in the skills needed to reach organizational performance standards and goals. ?That gap should then drive the recruiting strategy the business adopts for seeking new talent.

3.Communicate Expectations. ?Individuals that are capable of driving the performance of the company want there to be high expectations that are well-defined. ?Expectations are—or at least should be—reinforced in the way people are paid. ?When there is a clear link between company vision, business model and strategy, roles and expectations and rewards, “line of sight” exists. ?This simply means those elements are mutually reinforcing and work together to create a unified vision of what the target is, who is responsible for its completion and how he or she will be rewarded when those expectations have been fulfilled.

4.Communicate Rewards. ?In the context just described, pay strategies form the capstone that defines the financialpartnership with the company’s key people. ?As a result, compensation must be both effectively engineered and clearly communicated. ?That communication should include a statement of the company’s pay philosophy, an articulation of the specific program(s) being introduced and a projection of the total rewards value a producer can receive from the business over an extended period of time. ?This is not a matter, however, of simply walking employees through their compensation package. ?It’s about marketing a future to each individual employee, especially key producers. ?When all of this occurs, employees get a magnified view of the value proposition they are being offered through their partnership with the organization. ?A new employee, for example, is no longer being told they are being hired to fulfill a $175,000 salaried position. ?Rather, she is there to fulfill an important role and as such will participate in a financial “partnership” that is worth $1.7 million (for example) over the next five years through the combination of rewards for which she is eligible (salary, annual and long-term value sharing plans, traditional and executive 401(k) plans, flexible benefits, etc.).?

Any company that is serious about driving higher employee performance will need a framework such as the one just described. ?That way, the performance intent and focus of the business, its pay systems and its talent will be aligned. ?The result is a more unified financial vision for growing the business in which employees are encouraged and trained to adopt a stewardship mindset. ?They take ownership of their performance and progress because line of sight has been created—which carries with it an inherent accountability. ?