Is there a link between reward systems and high performance?

Yes, says Jack Dolmat-Connell, vice president and managing director of the Wilson Group, Inc., a consulting group in Concord, Mass. The Wilson Group's research revealed that programs that successfully exploit this link have three common components: First, they have a compact set of objectives that are well defined. Secondly, they identify the types of behaviors necessary in employees to reach these goals. Finally, they offer employees proper rewards.

Dolmat-Connell recommends following these five steps:

1. Link business strategies to unit and employee goals.
   
   
2. Focus employees actions on carrying out key objectives.
   
   
3. Measure performance in meaningful and effective ways.
   
   
4. Provide feedback that facilitates action.
   
   
5. Reward and recognize contributions, so employees take action.

Setting Goals

Dolmat-Connell says that each of the components is critical to the success of the reward program but that setting specific goals is the crucial starting point. He says, companies must identify the why of the program. Are they interested in bettering their customer service skills, working faster and being more flexible, or developing new technical skills? If so, they need to have a clear understanding of those goals first, before they can identify the skills the employees need for accomplishing those goals.

It is best if the employees come into the company with the necessary skills; therefore, consideration of better performance begins during the recruitment process. In addition, management can't shirk its responsibilities towards performance. Making sure employees develop the right behavior skills also means that management must not only talk the talk, but walk the walk; if managers aren't modeling the right behavior, employees will not take them seriously.

Finally, companies need to make sure that the rewards they are offering are ones that the employees care about. Dont take a one-prize-fits-all attitude, warns Dolmat-Connell. The best way to find out what would motivate employees is to ask them. Sometimes, you many even find that the best rewards are the least expensive.

Case Studies

Dolmat-Connell offered three examples of companies that have been especially successfull in linking performance to rewards:

Amazon.com. From the beginning, this company did not have a lot of cash, yet it wanted to attract and retain incredibly talented people. In addition, the work environment was not what one might call plush. Desks were made out of recycled doors, file cabinets were made from milk crates, and telephone books served as computer stands. So how do you recruit top talent without very good base salaries, any bonuses, or lavish offices?

Amazon.com offered employees other rewards. First, employees were given stock options designed to give them a very, very significant option award, especially for those who came to work early on with the company. In only three years, these stock options have made probably 200 to 300 of them millionaires, notes Dolmat-Connell. Employees also have had ample opportunity for advancement, thanks to growth: Someone who joined the company in the beginning might have managed five people; two years later, that person might have been managing 150.

Southwest Airlines. Southwest has sought to differentiate itself from other airlines by making exceptional customer service the norm. Like Amazon.com, it did not have a lot of money to offer at first. Base salaries were probably competitive at best, with bonuses probably slightly smaller than the competition's, explains Dolmat-Connell. Yet Southwest landed phenomenal people by creating a great work atmosphere and publicly recognizing employees who performed well.

Genzyme. This bio-tech company had a great business model, according to Dolmat-Connell, but its stock had languished for a few years. Genzyme wanted to give shareholders value but knew it needed a plan that would motivate executives to make some of the tough decisions that needed to be made. The plan it adopted, called Premium Price Options, differed significantly from the standard stock option.

Dolmat-Connell says the company essentially told executives, "We are going to give you double to almost triple the number of options you would normally get, but you are not going to get them at fair market value. You are going to get them at a premium over fair market value." Within nine months of implementing the plan, Genzyme saw its stock jump from the mid $20s to almost $60 a share. The Premium Price Option Plan can be given a lot of the credit for this increase, says Dolmat-Connell.