Organisations’ ability to create value is proportional to the ability of its resources and capability of its people to manage those resources. In todays age of standardisation and screening, as we strive to achieve efficiency through streamlining and standardisation, we forget that humans are unique and need to be managed differently than capital assets.
Before proceeding further, I would like to share a brief learning on how meritocracy is valued in some cultures, especially European and Asian. Few years ago, during a candid conversation with the director of an engineering company, as we shared our backgrounds, I learned that despite having inherited a multi-million dollar company, his starting position was not in the board room but on the shop floor.
Today, companies standardise job descriptions and incentives based on the organisational hierarchy. But the unique set of abilities of each individual needs to be managed and rewarded differently. Although this kind of practice is prevalent in sales where executives are rewarded as a percentage of the revenue, such performance based incentives need to be adopted throughout the organisation to deal with inefficiency, performance bottlenecks and encourage excellence.
To put this in context, let us understand the expectancy theory. People will behave based on their assumption of what their behaviour will bring them. For instance, if I ask my team to voluntarily work on a weekend in lieu of a bonus and at the next meeting I get pizza saying that this is their bonus. I am not likely to get any volunteers next time. Similarly, if the bonus given to an employee with higher efficiency is the same as their inefficient counterparts, he is less likely to continue the trend.
Company can be inherited but skills and competence need to be acquired through grit. The key stakeholders clearly understand their leverage and act accordingly. But for most other people in an organisation, motivational factors need to be used as a leverage. And the first step is to establish a culture of meritocracy not only for growth but also to ensure performance.
Now moving on to the challenges of adopting such systems. The first and foremost problem is measuring performance and establishing benchmarks. Usually larger companies have pre-defined KPI (Key Performance Indicators) metrics for each job position and defined performance benchmarks either based on data from previous years or targets in annual projections.
KPIs are usually ratios and job specific, some positions carry more than one and each may have a different weightage. For instance; in a manufacturing, the KPI of a production manager may be the ratio of reduced number of defects to the utilised improvement budget, while that of a quality inspector may be the ratio of the number of defects found to the man hours spent. As we strive to establish a productive environment we should not only analyse the individual effect of KPIs but also the cumulative effect. As in the above example, to increase KPI the quality inspector may unnecessarily point minor defects leading to counter productive environment.
Now moving to rewards, most managers believe that an appropriate bonus is sufficient to keep people motivated, but unfortunately it is not the case. The key to understand the most suitable reward for an employee lies in the understanding their driving factor. As McClelland’s theory of acquired needs states that people work for achievement, affiliation or power. These needs are acquired over time through their life experiences and can be recognised through a thematic apperception test.
Some strive to be the best in their field, usually professionals who focus on reaching the pinnacle of professional achievement. Others are complacent and just want to work in a good environment and be affiliated with good brand; usually associates and consultants strive to work in the Big4 – pwc, McKinsey, KPMG and EY. And then there are few individuals who strive for power and recognition, either monetary or political power.
The last step is to give appropriate reward in sync with their underlying needs to encourage growth. And if you require any help to develop your meritocracy compatible rewards system, feel free to give us a call.