I did some research about reward and compensation KPIs. According to this research four levels of reward practices can be defined.
On the 1st level a reward is linked to a performance KPI of an individual.
On the 2nd level a reward is linked to important business outcomes (not just to an individual’s performance). This is logically supposed to work better, but in practice it is not a long term solution to a motivational problem.
Most companies are on the 3rd level where a reward is paid in a form of stocks and investments in a retention plan. For example, Apple today is definitely at that level.
There is a 4th level, where a company doesn’t pay a reward at all. That’s what Henry Mintzberg was writing about in the Wall Street Journal back in 2009.
The conclusion of my research is that:
- A company should choose a reward scheme (be on one of the four levels) according to its current business objectives;
- It is important to understand to change the reward type when the business objectives change