Ethos Issue 6, Jul 2009
Rethinking Incentives
for the Downturn
Stephen Choo
Management approaches that engage and enable
employees are needed more than ever in a downturn,
argues Hay Group’s Stephen Choo.
Good times can obscure many
mistakes. In a boom market,
companies may be more
lenient towards poor performance
and be less inclined to enforce strict
performance management systems.
In crunch times, many companies
do the opposite, and impose stricter
or more punitive measures on all
employees regardless of performance.
Mediocre performers are unlikely to see the need to change while high
performers—seeing no return on their
discretionary effort—may leave. Hence,
employee engagement suffers at a time
when the company needs it most.
Employers may be less concerned
about employees leaving them during
a downturn. However, when good
times return, disengaged employees
are more likely to jump ship at the first
opportunity, just when recovery for the firm becomes possible. Conversely,
when employers adopt a long-term view
of engaging their employees during a
downturn, they will be rewarded with
increased loyalty and motivation when
the next wave of growth arrives.
The extended period of market
growth in Singapore, and indeed in
Asia, meant that many employees were
accustomed to receiving some sort of
bonus and annual salary increases, and
may have come to regard these bonuses
as a right rather than as a reward
for organisational success. With the
economic crisis limiting salary budgets,
how can managers avoid the money trap
and ensure that their staff continues to
be motivated and engaged?
In a spot survey of 516 public, private
and government organisations in Asia
conducted in November 2008, Hay Group
found that Asian companies were using
their salary budgets more strategically to reward performance—
paying an average
of 66.7% more in base salary increases
to their high-performing employees
compared to all other employees. At the
high end, Malaysian, Hong Kong and
Singaporean companies surveyed had
doled out an average of 60% more in base
salary increases to their star performers
in 2008 (Table 1).
Certainly, a robust performance
management and reward system is critical
to success in a downturn. As always, it
is important for organisations to clearly
define, communicate and recognise
what good performance looks like,
and to appropriately portion rewards
based on differentiated performance
(as well as ensure that poor performance
is identified and addressed).
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