Management remuneration schemes (MRS) can be used to attract and maintain management. (Kominis & Emmanuel 2005) Management remunerations can also be linked to the growth of companies (PwC 2023). The loss of a valued employee can amount to a cost of 50‒100 % of the employee’s annual salary package. The costs consist of recruitment costs, training, and possible mistakes they make in the beginning. Increased stress and reduced performance in remaining staff as well as missed future opportunities also increase costs. (Bussin 2014, 13)
MRS are seen as a way to attract and retain key talent, possibly also provide ownership in the form of equity. Remuneration schemes can also be seen as a means to ensure and enhance the growth of business.
Possible disadvantages of remuneration schemes
A number of managerial remunerations are based on self-assessments and 360 reviews. However, both methods come with challenges. Group norms and organizational culture can affect self-assessment revies, which can in turn lead to distorted self-assessments. 360 reviews can also be affected by respondent biases resulting in an incomplete or inaccurate depiction of an employee performance. Both reviews focus on easily observed characteristics rather than day to day activities and behavior. (Puutio 2024)
Three reasons can be observed driving the change from traditional performance appraisals and remunerations schemes, firstly the development of people in talent driven companies such as consultants or auditors, where it can be noted that feedback directly after client engagements helps managers do a better job of coaching and allows the application of the feedback immediately. Secondly organizations operate in increasingly rapid environments requiring agility to maintain their competitive advantage. Thirdly the increased amounts of team efforts versus individual efforts also call for team or project appraisals rather than individual annual ones. (Capelli & Tavis 2016)
Puutio (2024) notes that ultimately performance management should not try to control or direct the performance from above when the goal should be to allow and enable employees to self-manage their performance. Thus manager-led processes should be replaced by employee driven ones. Organizations should instead of building administrative blocks centered around measuring behaviour and/or outputs, concentrate on supporting and allowing the employees to learn from feedback they receive directly from the actions or decisions. For example, employees and managers should not have to rely yearly performance reviews, they should be allowed access to data reflecting the impact, efficiency and effectiveness of their performance.
Towards strategic goals
Remunerations schemes should reflect the environment companies operate in. In a fast-moving competitive environment agility and innovative action ensure obtaining or maintaining a competitive advantage. Remuneration decisions in such environments should, rather than being tied to annual performance reviews, be tied to employee empowerment by allowing staff to enhance and guide their pay by improving their performance towards strategic goals.
Author
Kristiina Brusila-Meltovaara works as a principal lecturer in the technology department of LAB University of Applied Sciences.
References
Bussin, M. 2014. Remuneration and talent management : strategic compensation approaches for attracting, retaining and engaging talent : a practical and informative textbook for managing the tension between talent and remuneration in organisations. 1st ed. Randburg, Republic of South Africa: Knowres Publishing.
Capelli, P., Tavis, A. 2016. The Performance management revolution. Harvard Business Review. Cited 19 Aug 2024. Available at https://hbr.org/2016/10/the-performance-management-revolution
Kominis, G., & Emmanuel, C. R. 2005. Exploring the reward preferences for middle level managers. Qualitative Research in Accounting & Management, 2(1), 54-76.
Puutio, T. A. 2024. 3 red flags youre doing performance management wrong. Leadership Now. Cited 19 Aug 2024. Available at https://www.fastcompany.com/91125825/3-red-flags-that-youre-doing-performance-management-wrong.
PwC. 2023. Management Incentive plans. Cited 19 Aug 2024. Available at https://www.pwc.ie/services/pwc-private/insights/management-incentive-plans-role.html.
tevenet. 2017. Tung Lam. Rahaa, dime, kolikot. Pixabay. Cited 19 Aug 2024. Available at https://pixabay.com/fi/illustrations/rahaa-dime-kolikot-kolikko-2953695/
