Now introduce people into the equation.

Now we declare that different people performing the same job may add different value to the organization. Entering people into the compensation equation greatly complicates the compensation process. Indeed, there is growing evidence that the way we design HR practices, like performance management, strongly affects the way employee perceive the company. And this directly affects corporate performance. The simple (or not so simple, as we will discuss) process of implementing a performance appraisal system that employees find acceptable goes a long way toward increasing trust for top management.' The key learning from Exhibit 9.2 is an important one: compensation can't do it all alone. Try changing behavior by developing a compensation system to reward that behavior. If you haven't selected the right people, if they don't have the necessary training, if you aren't measuring performance, and if it's not part of the culture to do things that way, you're destined for failure. So, what behaviors does compensation need to reinforce? First, our compensation should be sufficiently attractive to make recruiting and hiring good potential employees possible (attraction)." Second, we need to make sure the good employees stay with the company (retention). If we can succeed at these first two things, we can then concentrate on building further knowledge and skills (develop skills). And, finally, we need to find ways to motivate employees to perform well on their jobs-to take their knowledge and abilities and apply them in ways that contribute to organizational performance. We need to accurately measure performance to tell if our compensation efforts are working. We can't tell if our compensation system helps recruit and select good employees if we don't know how to measure what constitutes good. We can't tell if employees are building the kinds of knowledge base they need if we can't measure knowledge accumulation. We can't reward performance if we can't measure it! As a simple example, think about companies where piecerate systems are used to pay people. Why do many sales jobs use commissions (a form of piece rate) as the primary compensation vehicle? Conventional wisdom has always been that it is relatively easy to measure performance in sales jobs-just measure the dollar sales generated by salespeople if you want to know how well each of them is doing. There is little ambiguity in the measure of performance, and this makes it easy to create a strong link between units of performance and amount of compensation. One of the biggest recent advances in compensation strategy has been to document and extend this link between ease of measuring performance and the type of compensation system that works best.

Low variability: Few swings in overall and corporate performance High variability: Regular and large swings in overall corporate performance Variability/ease of measurement

in individual performance

1. Compensation - Wages, commissions, and bonuses 2. Benefits - Vacations, health insurance 3. Social interaction - Friendly workplace 4. Security - Stable, consistent position and rewards 5. Status/recognition - Respect, prominence due to work 6. Work variety - Opportunity to experience different things 7. Workload - Right amount of work (not too much, not too little) 8. Work importance - Is work valued by society 9. Authority/control/autonomy - Ability to influence others; control own destiny 10. Advancement - Chance to get ahead 11. Feedback - Receive information helping to improve performance 12. Work conditions - Hazard free 13. Development opportunity - Formal and informal training to learn new knowledge skills/abilities