Ford Peterson recently wrote a short introductory article for the AFA magazine on how regulatory changes in financial services industries might begin to effect remuneration models.
The view being that we need incentives for people that reward customer acquisition and growth while at the same time having structures in place that encourage compliance with the ever-increasing regulatory requirements of those industries.
The real challenge for any remuneration model is that it is very hard to find a linear relationship between indirect revenue drivers and revenue. Or in the case of compliance, a linear relationship between reduction in business risk and profit.
This non-linear relationship makes finding a fair measure of such activities, which in turn limits the effectiveness of performance KPI’s on behaviour based on the above.
As such, when it comes to behaviour that has a non-linear relationship with revenue, it is more of an organisational culture question than an incentives question.
So then, to determine the best models there are 4 questions that need to be answered:
- What can organisations do to ensure their culture encourages the right employee behaviour?
- What are the best remuneration models for different desired outcomes?
- Which combination of the two will have the most positive outcome?
- How does this effect the employee review and recruitment process?
Over the next few weeks we plan to cover each of the above questions starting with the first one:
What can organisations do to ensure their culture encourages the right employee behaviour?
Organisational behaviour has many moving parts and the below is a very high-level view.
When it comes to behaviour that is indirectly related to revenue / business performance, it needs to be self-regulating so, significantly, starts with an organisation’s core values.
Core values of a group are the implicit or explicit values that governs behaviour of individuals of a group.
Implicit core values will develop in any team or business.
If the goal is to encourage a type of behaviour, then it is up to the business to invest the time to work with employees in establishing a set of explicit core values that will help them achieve the desired outcome.
There are a number of positive (and negative) examples of core values at work, see:
- Valiant Pharmaceuticals;
Once explicit core values have been established it is about reinforcing them on a daily basis and making them a central reference point to any employee feedback, performance reviews and hiring process.
If you are interested in finding out more about core values there are a number of excellent resources available so please get in contact with me and I can pass them on.