Principle Based Management™ (PBM), formerly known as Market-Based Management®, provides a holistic approach to making decisions, solving problems, and creating value for individuals in your community, team members in your organization, and society at large. In this PBM 101 series, we’re unpacking mental models, ideas, and tools that can help you reach the next level in your work.
In recent articles we explored the foundations of the Incentives Dimension of Principle Based Management. We identified key markers of contribution-motivated behavior and deficiency-motivated behavior. We also explored five common misconceptions about employee compensation.
Now we’re addressing a more tactical concern: how should you run compensation reviews? All incentives should motivate individuals to fully develop their strengths and meaningfully contribute to the organization. And how team members are financially compensated is top-of-mind for many. If done purposefully, you have the opportunity to inspire your employees’ best work while helping them thrive. If you get it wrong, you risk making your best employees feel underappreciated—and potentially losing them to other job opportunities. With some employees, you could also unintentionally reinforce the wrong behaviors.
Here are a few strategies to consider when thinking through a compensation review. Remember: your goal is to empower mutually beneficial employer-employee relationships. That means you should consistently match total compensation with an employee’s total contribution.
Develop a point of view on your employee’s total contribution.
In most cases, a supervisor is uniquely positioned to evaluate and summarize a team member’s contribution to your organizational efforts. Therefore, supervisors should recognize that certain roles lend themselves to clearer metrics than others, like “total funds raised” or “number of beneficiaries served.” But no employee accomplishes those metrics alone. That means every role likely has an impact on visible performance metrics, even if that impact is indirect. However, don’t forget to examine results that are less obvious. Did that team member productively contribute to the internal culture you are building? Are they particularly adept at helping others succeed in their roles? What do other team members say about that employee’s performance? After you have evaluated a team member’s total contribution, you should have a clearer opinion on whether their compensation is appropriately aligned or not.
Develop a point of view on total compensation.
Once you’ve developed a perspective on a team member’s contribution, you should work with HR leaders or conduct your own research to enhance your point of view on compensation. Are there others in your industry you can talk to in order to learn about what compensation is like elsewhere in the market? If you’ve had positions open lately, what are your applicants telling you about how they’re compensated? If you have access to market survey data, what can you learn from it?
Develop a key message around your compensation decisions.
Before you make a compensation decision, consider what you want to accomplish; use that to help you decide how the money matches the message. When your opinion about a team member’s compensation is fully formed, distill it into a key message. Be as specific as possible. What is the value you see them creating? What behaviors do you want to see continue? Do your best to summarize these points in a few sentences. Unclear messages around incentives may hinder growth in an employee.
Communicate clearly and personally.
When it’s time to share your compensation decision with a team member, clarity is key. Like all employment decisions (changes in responsibility, disciplinary action, etc.), this is an organizational decision that you represent and own as a supervisor. After your first conversation with the team member, follow up with them to address any questions, and to ensure the intended message is clear and understood.
Seek continuous feedback.
This strategy isn’t a single action as much as it is a constant process. You should get in a rhythm of soliciting input proactively throughout the entire compensation process. HR leaders, executives, and managers can help you identify blind spots you may have missed. Their input may influence the final compensation decision or the way that you communicate it. And seeking feedback from your team members will help you find new ways to improve the process from their perspective.