HOW TO ALIGN REWARDS,

PERFORMANCE, AND
CULTURE
Phase 1: Position Process and Align Stakeholders - How to Align Rewards, Performance, and Culture |
Rise 360

Introduction

Should your
organization be
rewarding based on
individual
performance?
About Broadreach
Telecommunications

Broadreach
Telecommunications
prides itself on its
performance-driven
culture.
They started as a minor player in the telecommunications industry, but
the last five years have seen significant growth in both revenue and
headcount. Even though performance management has been in place
for several years, the organization has never been able to effectively
link performance to reward.

Several managers believe that increases and incentives were applied

inconsistently and don’t trust the process. Broadreach currently has
783 employees working across nine departments.
We join Simon during his annual performance appraisal calibration
meeting, where he is trying to introduce more fairness and consistency
into how managers rate performance.

Performance Calibration
Meeting
Let's take a moment to analyze this meeting and see what Simon could
have done differently.

To do that, we are going to use a structured performance alignment

approach that consists of three phases. We will guide you through
each of these phases as per the picture below.
Lesson 4 of 11

Phase 1: Position Process and

Align Stakeholders
To prepare for the performance alignment discussion, you need to
analyze the performance rating trends data to determine the
following:

1. 1

Better understand the trends on how the organization has applied the
performance rating process.

2. 2

Highlight areas of potential bias and present those for discussion

during the session.
3. 3
Ensure more consistency between different areas and how the rating
scale has been applied.

You reached out to your people analytics department, and they have
prepared a few interesting charts for you to look at.
Now it's time for you to analyze the performance data to evaluate
whether any bias exists within the rating trends.

Click below to continue.

--

Step 1: Preparation for the

Session
You have asked your HR analyst to visualize your department’s
performance rating distribution, also called a rating curve.

Click below to see the curve.

Graph 1 - Performance Curve - B2B

Department
As a first step, you analyze the B2B department for Broadreach in its
entirety.
Your analyst made the following curve visualization, showing what
percentage of employees was graded with which performance rating by their
line manager.

The blue curve of the department is offset against a target distribution curve,

depicted by the dotted line.

The purpose of the target distribution curve is to provide an indication of the

desired rating trend identified by the organization. These trends will differ,

and later in the lesson, we will indicate how to identify the best-fit target

distribution curve for your organization.

The purpose of this comparison is to facilitate the easy identification of

deviations from the target/norm.

The current departmental curve looks alright: It closely resembles the target

distribution curve.
What does the target distribution curve refer to?

 A proposed outline of how performance should differentiate across the

rating scale
 A forced ranking of performance rankings
Looking at the first chart, you notice there is a good spread of ratings, which
suggests that the B2B department overall has differentiated well between
individual levels of performance.

Yet, you want to be sure there are no hidden biases in the data, so you ask
your HR analyst to drill down into several subgroups.
Click below to view the additional curves.

Before we look at specific subgroups within the organization, let's

quickly recap two types of bias that can occur.
Great! With this in mind, we can continue analyzing the data.

Click below to analyze the performance curves for different functional

sub-departments.

Graph 2 - Performance Curves

- Functional Sub-Departments

As a first drill down, the HR analyst created a similar visualization to show

the performance curves for the different functional sub-departments: sales,

service, and support teams.

The curves for the functions seem to differ from the overall curve for the

department as well as from the desired target curve.

You are happy that you asked for this drill-down, as the visualization

uncovers that bias does exist between the departments. This will be an

important point to discuss during the alignment session, yet you want to

identify what type of bias exists.

As a first drill down, the HR analyst created a similar visualization to show

the performance curves for the different functional sub-departments: sales,

service, and support teams.

The curves for the functions seem to differ from the overall curve for the

department as well as from the desired target curve.

You are happy that you asked for this drill-down, as the visualization

uncovers that bias does exist between the departments. This will be an

important point to discuss during the alignment session, yet you want to

identify what type of bias exists.

Triggered by the observed bias between different departments within

B2B, you ask your analyst to provide you with some additional drill-
downs based upon employee characteristics.

Click below to analyze the performance curves for different employee

characteristics.

Graph 3 - Performance Curves - Employee

Characteristics
You receive the following visualizations, showing the curves for different
groups of employees in the department.
Prepare Presentation Pack and Chair
Once you have conducted this analysis, you prepare your final
presentation pack with the relevant information that you want to
discuss during the performance alignment session. You need to ensure
that you have scheduled these sessions ahead of time, prepared the
agenda with the identified committee chair, and sent the required pre-
reading. You can share high-level trend data but do not include any
information that includes names for the broader audience — you
should only include this additional information for the relevant division
To make this practical, for Broadreach all participants will receive the
general trends, and Timothy as the sales manager will also receive the
detailed data and trends for the sales division.

Data integrity is extremely important during this phase — validate the

information with the relevant departments and ensure that they are
able to explain any anomalies in the data.

Let's go back to Broadreach to see how they approach the

conversation differently than before.

Lesson 7 of 11

Step 2: Session with Stakeholders

Let’s recap what happened within the session and how you can apply these
steps in your own organization:
 •
Always have an independent party chairing – this helps to remove the
emotion out of the session. The ground rules also allowed us to set the
tone for the conversation and keep stakeholders in check.
  •
Start with macro-level data trends and ensure that you have prepared
each department to speak to their own data. This allows us to see if
the identified bias is justified or alternatively how we can correct it.
 •
Finally, we balanced the changes that had to be applied in the session
with changes that could be relooked post the conversation. In this
example, we dealt with differences between departments by applying
a moderator and dealt with gender bias by relooking some of the
specific ratings. Keep in mind that in your organization there could be
biases that are justified e.g. one department could legitimately have
outperformed another and in this instance, the ratings need not be
adjusted – you do need to however be able to explain why you believe
the differences in ratings are justified.

Post the session, you finalize the action steps identified, consolidate the data
from the various sessions and prepare for the final phase: Reward Alignment

Click below to proceed to "Phase 3 — Reward Alignment."

Phase 3: Reward Alignment

Rewards play a crucial part in shaping organizational culture. Ensuring

that you utilize the right Total Reward strategies that align to the type
of desired organizational culture you want to shape is important -
specific reward mechanisms will encourage or discourage certain types
of behavior and it is important to be intentional about the type of
behavior you want to reinforce through reward.

During this phase we are going to use the calibrated or aligned

performance ratings and through different reward, options show how
your reward strategy will influence organizational culture and
organizational performance.
To demonstrate this for Broadreach, we are going to use the
Competing Values Framework that provides us with a basis for
understanding organizational culture.

Click below to learn more about the Competing Values Framework.

Competing Values Framework

The Competing Values Framework was created in 1983 by

Robert Quinn and John Rohrbaugh. It helps organizations

define opposing forces within the organization that either

promote or inhibit certain behaviors. The framework helps

the organization understand how culture influences

organizational effectiveness and performance.

Based on the Competing Values Framework, effective companies are

dealing with two balancing acts:

1. 1

Focus: Some companies are effective when they focus on the internal
processes, while others are effective when they maintain a competitive
external positioning.
2. 2
Stability: Some organizations show efficiency when they demonstrate
flexibility and adaptability while others succeed because they are run
by stability and high levels of control or structure.

These two elements describe the organizational culture in terms of four

types. It is important to note that all four types will be present within
the organization. We are interested in understanding the extent to
which the type is represented in the organization.
Family
The family or clan type of organization is held together by shared values
like stability, cohesion, participation, and succeeding as a team. This is a
people-focused organization where employees share a lot about themselves,
leaders are often regarded as mentors, and there is a high emphasis on
personal development and fulfillment through work. Management is
incredibly good at building a sustainable company. Risk-taking is uncommon
in this type of organization. In the top left corner, we find companies that are
focused internally. The downside of this type of organization is the lack of
flexibility and adaptability. Oftentimes, these organizations are too internally
focused and at times can lose touch with the market.

Adhocracy
The adhocracy is an externally focused, highly innovative, and flexible
company. This type of organization likes to take risks. Creative ideas and
diversity drive the company to success. Leadership is visionary, innovative,
and synergy-creating. In times of uncertainty, this type of organization has
the internal resources to reinvent itself. It quickly makes sense of ambiguity
and instability as adaptability and flexibility are its main forces. The capacity
to innovate and become memorable is what defines success in this type of
company.

Hierarchy
The hierarchy organization is internally focused, run by control, order, and
continuous improvement. It is a procedural and formalized place to work.
Leadership is quality-focused and has a long-term vision for the organization
as a predictable, stable structure based on clear rules and formal policies.

Market
The market-oriented company became popular in the ‘60s, when
organizations were trying to adapt to the new challenges of the market. A
way to build an effective organisation was to adapt to market mechanisms.
This organization is externally focused, continually looking to compete,
control, and gain competitive advantage. This type of company operates
through economic transactions, seeking to acquire new clients, contracts,
and sales. Achieving goals and winning are what hold this company together
— and making money.

Most organizations will have all four of these quadrants represented

within their culture, but it is about creating the right positive tension
between them to produce the desired outputs. Some situations require
more than one approach to problem-solving.

In the next chapter, we will take a look at how the total rewards
strategy plays a role when linked to the Competing Values
Framework.

….
Rewarding for Company Values
Total rewards play an important role in reinforcing the type of culture you
want to see. For Broadreach, we will apply four different reward options
using their calibrated performance ratings and showcase how this method
influences the four different culture types positioned in the Competing
Values Framework.
Depending on the approach that Broadreach decides to use, this will
influence the type of culture they are reinforcing through their reward
strategy. From a budget point of view, Broadreach can only increase
the total cost of their salaries by 4% for the next financial year. This
means that all of the options have to come in on budget regardless of
approach.

Click below to see how the different reward options will promote the
different culture types outlined in the competing values framework.

CLAN CULTURE

 To promote a clan culture, we want to encourage an approach that

promotes teamwork, dependency on each other, and showing that that
“together we can achieve more.” To do so, we only differ slightly
between the levels of performance with our “not meeting
expectations” employees still receiving a 3.6% increase and our
exceptional performers receiving a slightly higher 4.4% merit or salary
increase.
 A clan culture aims to promote teamwork, so we would also explore
shared team rewards, which is often provided in the form of annual
recognition events and experiences.
 We will also use other total rewards mechanisms that align to a clan
culture such as employee share schemes, long-term incentives that
encourage loyalty, and a strong focus on learning and development
opportunities for employees to grow.
 We want to encourage a culture of care, and as such, we would also
invest in employee wellness initiatives as well as other mechanisms to
show that we care about the employee and their families.
 In terms of benefits, we would also explore inclusive benefits such as
employer-funded medical aid or pension fund contributions
,,,,

 A market culture wants to reward results and high performance. To do

this, you will notice that we have rewarded our exceptional performers
with 8%, whilst not providing our employees who did not meet
expectations with any form of increase.
 This approach encourages individualistic performance. It promotes a
highly driven performance culture.
 Our rewards here need to be highly comparable to the external market
as in this type of culture, employees who thrive and flourish are also
quick to move elsewhere if they believe that they will be more
appreciated elsewhere.
 In this culture, bonuses are big, paid frequently, and we try to drive a
direct correlation between results and the incentives we provide — it is
not uncommon in these cultures to pay a quarterly bonus to our best
sales agent or customer service agent.
 Benefits are few, and it could be that as an organization, we don't
provide many benefits in terms of medical aid, well-being programs,
and pension funds. We provide a highly competitive cost to the
company's total package and leave employees to decide which
benefits are important to them.
  We would encourage high visibility, public recognition, and high levels
of incentives.
 Development would be for our top-performers and would be focused
on prestige, e.g., opportunities to do an MBA at a leading international
business school and development is seen as a form of status.
 Non-performers are not tolerated, and anyone below what is deemed
acceptable from a performance point of view gets the message that
they either need to come to the party, or otherwise, they don't have a
place in the organization.

,,,,,,,,,,,,,,,,

 For the adhocracy culture, we want to encourage innovation and

entrepreneurial behavior. We understand that failure is a key
requirement to innovative and try new things, and as such, we still
provide some increases for our employees who might not be meeting
expectations or under-performing. However, we want to differentiate
our exceptional performers and show how their contributions are
valued — as such, we provide larger increases for those that exceed or
deliver exceptional performance
 We want to promote external collaboration, so as part of our total
reward strategy, we will encourage employees to attend conferences,
 join societies, write down their learnings, share their ideas, and attend
world-leading events.
 Other mechanisms we would look at here is providing employees with
exposure to new learning opportunities, providing time for employees
to pursue other interests to stimulate their thinking.
 Flexibility is very important for this type of culture, and we promote
and reward creativity and innovative ideas.
 Bonuses or awards are often provided to new inventions, new
products, or services.

………………….

 A hierarchy culture aims to reward consistency and quality. It's

important to do things right all the time, every time. Our reward
structure reflects this behavior with limited differentiation between
those that are performing, whilst a significant drop in increases for
those below the successful performance rating.
 Total rewards will be highly structured and mechanical, and we could
consider certain reward milestones aligned to organizational levels,
e.g., at the managerial level employees might participate in a long-
term incentive pool, whilst employees adopt a 13th cheque approach.
  Bonuses in this culture are often deferred over time, e.g., employees
receiving set amounts over an agreed time.
 Important for this reward approach is predictability — it focuses on the
long-term, and there is consistency in the approach, e.g., increases will
look similar every year or at least be calculated based upon the same
principles.
 Formal recognition programmes will exist and we will use those to
reward and recognise employees consistently for showcasing the right
behaviors over time.

Lesson 9 of 11

Broadreach's Culture Matrix

Broadreach has just completed a culture survey based upon the
Competing Values Framework and below you will find the current
profile of the organization. As stated earlier, Broadreach prides itself on
its culture of performance and they want to ensure that they continue
to drive this type of behavior. As they have grown significantly over the
past 12 months, they also need to introduce more structure and
processes in order to scale the business.
Looking at the above chart, what is the most and the least

represented culture type within Broadreach?

Most: Hierarchy
Least: Market
Correctly unselected
Most: Market
Least: Adhocracy
Correctly selected
Most: Adhocracy
Least: Hierarchy
Correctly unselected
Most: Clan
Least: Adhocracy
….

Let's look at how Broadreach can apply these different reward options
to drive the desired behavior within their culture.
Reward Implication
For Broadreach, Simon wants to ensure that the approach followed
promotes the type of culture that they want to encourage. He also
needs to ensure that he can show to the executive team that rewards
will also have an impact on employee retention as this is important for
Broadreach to retain their key talent. As employee turnover is a
concern, it is important that their approach retains their top-
performing employees.

He decides to consult with the people analytics team. Click below to

view their email thread.

 From: [Link]@[Link]
To: PAteam@[Link]
Hi team!
I am working on a new reward strategy that will take into account our
company culture and organizational goals. As you know, it is very
important for us to retain our top talent.

Is there a way for me to showcase the potential impact of our reward

approach on turnover to the leadership team?

Let me know if it's easier for you to jump on a quick call to discuss!

Thanks,
Simon
 From: PAteam@[Link]
To: [Link]@[Link]
Hi Simon!

What an interesting question!

We actually just finished a people analytics project where we
quantified the relationship between rewards and employee turnover.
We extracted historic data from our HRIS, data of employees and their
percentual merit increases, and whether or not they left the company
during the next twelve months.
By fitting a regression model to this data, we were able to directly
quantify the turnover probability of employees as a function of their
merit increases.
This is what the formula that came out of the model looked like:
 turnover likelihood = 0.084 – 1.12 x (% merit increase / 100)

As you can see there is a baseline likelihood that a given employee will
turnover (0.084, or 8.4%) and it becomes lower for every 100th
percentage point merit increase (-1.12/100, or -1.2%). The formula
should allow you to estimate for any given employee their chance of
turnover in the coming year.

Hope this helps! Please let us know if you need additional info.

Best,
PA Team
 From: [Link]@[Link]
To: PAteam@[Link]
Great news!

If I understand you correctly, based on this formula, I can calculate the

chance that an employee with a certain merit increase will leave the
organization?

This is very important to me because I want to make sure that

whatever merit increase option the exco decides on, that they are
confident that it does not contradict our cultural goals.

I am also curious if not paying a merit increase will have a negative

impact. I would like to investigate deeper into this and bring it as a
perspective to the discussion.

So, just to confirm:

For example, if I take an employee with a merit increase of 4%, they

have a 3.92% chance to leave the company sometime during the next
12 months?

Here is how I did the calculation:

Turnover likelihood = 0.084 – 1.12 x (% Merit increase / 100)

= 0.084 – 1.12 x (4 / 100)
= 0.084 – 1.12 x 0.04
= 0.084 – 0.0448
= 0.0392
Turnover likelihood = 3.92%
 Thanks a lot for your help!

Simon

We can connect these insights to examine the impact of the decision

the exco makes in terms of which merit schema to apply.

Let’s run the four culturally-aligned merit schemas through our formula
to examine the average predicted likelihood of turnover in each of the
performance rating categories before we make a recommendation to
Broadreach on which option is best suited to their culture.

Click below to continue.

for a clan culture, we want to drive high levels of retention — you can see
that the turnover risk we face is slightly higher for those not meeting
performance or that requires improvement, and slightly lower for those that
are currently performing. In this schema, we believe we can help the non-
performing employees to turn their performance around.

As you can see, you can gain powerful insights into the implications of
your total rewards programs when you use data and people analytics,
and link your policies and practices to relevant outcome metrics.
It's important that you do not think of total rewards in isolation, but
consider the alignment with the organizational strategy and culture, as
well as the implications on employee engagement, performance and
retention to mention a few.
Which two approaches do you believe Simon should present to the

CEO as possible options?

 Clan
 Market
 Adhocracy
 Hierarchy

Great work!
Simon is now prepared to discuss the proposed approach with his CEO
in preparation for the exco meeting. Once Simon has finalized this
exercise in partnership with his HR analyst, he adds a section on the
proposed reward approach and options for discussion with his CEO and
CFO.

You can apply these same steps in your own organization and provide
similar recommendations in the appropriate manner to link
performance and the implications of different reward approaches on
your desired culture.

Conclusion - How to Align Rewards, Performance, and Culture | Rise 360