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Employers have become a victim of their own deeds. When the war for talent broke out, employers were vying against each other for the best talent. Each of them tried offering attractive pay packages and benefits schemes. The strategy did pay handsomely, but the returns were rather short lived. Today, majority of the companies that were ranked among the highest paying employers are on the verge of bankruptcy. The recent victims of this old theory of workforce management have been none other than corporate stalwarts like GE and Delphi. Delphi, the automaker, filed for bankruptcy recently as its profit figures were dwindling and expenses mounting. The new ruling would mean much lower wages not only for Delphi but also for the entire auto industry. The plunge in wages will have far reaching consequences for the entire corporate fraternity and its workforce management strategy. May be not literally but for all practical purposes investments have reached a point of “no return”. Employers are beginning to realise that to sustain high wages and rich benefits in the face of fierce competition is a tough call. Competition has bled into the profit margins of business giving them lesser leeway for offering attractive salary and benefits packages. Performance-based compensation seems to be the most lucrative option for retaining the talent. The high wage-rich benefits crisis is largely true for the gray haired corporates operating on the traditional model of workforce management, that suggest higher salaries as the only way to retain talent. Though the theory still holds true, its application has become selective. With salaries hurting profits, employers are moving towards performance-based compensation plans with a drive never seen before. Performance-based compensation has been here for over a decade now. However, its need is being felt with a greater urgency today in view the fierce competition that the corporate world is witnessing. Performance-based compensation is by far the most mutually beneficial solution for a corporate wanting to retain the best without bleeding its bottomline. Cases in point The effectiveness of performance-based compensation has been proven beyond doubt. Corporates ranging from giants like GE to organisations like United Airlines, swear by it. Its impact on employee morale and profitability is more than satisfactory. For instance, even a bankrupt corporation like United Airlines struck gold when it initiated the ”Success Sharing“ programme to reward employees through bonuses on accomplishing certain pre-determined goals. Similarly, Metaldyne, an auto component manufacturer initiated a performance-based bonus plan for its 4,300 workers. The company largely employed hourly workers and employee turnover was a cause of great concern, owing to the cyclical nature of work. The programme focuses on identifying certain pre-determined targets to be achieved in a given time frame. These targets are largely short-term in nature and vary from increasing work efficiency to scrap reduction. Each unit is one entity, and employees thus unite in their efforts to meet the targets. This helps build teamwork, meet performance objectives and increase productivity. The programme has been a runaway success at Metaldyne, with the turnover rate sobering down to an almost negligible figure (the company has not provided exact figures ). Further, employee morale has risen, with performance-based compensation making the entire process of rewarding and condemning employees fair and transparent. Like Metaldyne, Nucor, a North Carolina based steel manufacturer has its own story to tell. Nucor’s performance driven compensation strategy is a force to reckon with in the field of workforce management. The company has an integrated compensation system so employees get a weekly bonus on attaining the pre-specified weekly targets. The bonus is a handsome 150 percent of the worker’s basic pay, amounting to USD12 per hour. Similarly, the divisional managers get bonuses on the basis of their division’s (comprising of a number of units) performance.The entire scheme has a snowball effect, as the ultimate beneficiary is the organisation. Employees at Nucor swear by its transparent system of performance bonus. They believe that at Nucor, everybody gets a fair deal. Despite stiff competition from countries like China, Nucor is confident about maintaining its bottomline figures only because of its performance incentives. United Airlines has a similar success story to narrate. One of the major differences between United Airlines and other companies pursuing performance-based compensation programme is in the way the former perceives compensation. Despite its bankrupt status the company perceived performance-based compensation as an investment that could turnaround its business for good. The airliner framed a programme that focused on metrics for every function. Each of the functions, from the baggage handler to the pilot had a unique set of targets set under a strict time frame. The company understood that performance-based incentives were not a cost centre but a strategic tool to enhance workforce productivity. The company’s optimism and unshaken belief in performance incentives paid off and today United Airlines is back on its feet. In addition to bonuses and other cash-intensive programmes, corporates can adopt non-monetary forms of incentives too. As clichéd as it may sound recognition through effective channels is a sure way of getting around employees in order to get the best out of them. Moreover, regular feedback on employee performance is another effective method of boosting performance. For many, performance-based compensation may be a lose-win situation. However, it is in the best interest of the organisation, since only those who have the ability to maintain a win-win equation would survive, leaving the other not-so-competent behind.
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