The first two posts in this series about more effective compensation programs focused on the manager’s role in ensuring a strong link between pay and performance, and auditing these programs to make sure they are on track. For this last entry in our compensation series, we focus on the role of finance and the CFO when it comes to paying and motivating employees.
Given that compensation is almost always a company’s largest expense and the direct impact overall employee performance can have on company financial results, it makes sense for CFOs and finance to play a role in ensuring a strong link between pay and performance. Here are some of the areas where CFOs can concentrate their efforts:
1. Is the process clear to employees and managers? Employees need to be partners in this process by understanding performance expectations and having a development plan in place for their own careers. Managers need to support and guide employees through this process, while also communicating how the employee’s role and performance impact the company as a whole.
Having an unclear or overly complicated process for evaluating employee performance and making pay decisions related to that performance can quickly undermine this process and derail the pay/performance link. Therefore, it is critical to train managers and supervisors to provide clear performance expectations to employees and clear explanations about how that performance can impact employee pay. In some cases, performance expectations and modeling may be uneven, with some parts or levels of the organization doing a better job in this area than others. By evaluating the performance management and pay decision-making processes, CFOs can work with HR and management to identify and address these weaknesses.
2. Does the company need better tools to support pay and performance programs? In an organization of any complexity, managers and employees need effective tools to ensure appropriate performance management and pay-related decision making. In many cases, that means leveraging technology that can help guide managers and employees through this process to ensure that it is as streamlined and consistent as possible.
3. Are pay and performance linked clearly to the company’s strategy? Performance expectations and pay decisions must support the achievement of the company’s strategy and objectives. Not surprisingly, this is an area where CFOs can add a great deal of value. “Companies can audit the characteristics of the performance management and pay plan design to see if those programs and their execution are helping the company to achieve its strategy,” says Laura Sejen, global rewards leader for Towers Watson in New York. “If there are weak spots, they should be addressed.”
4. Are finance and HR working together on these issues? Given the pressure to improve organizational performance, productivity and financial results, effective pay and performance programs should be a joint venture between HR and finance. “Finance has long been involved in pay plan funding decisions,” notes Sejen. “Finance is also going to be quite comfortable with some of the analytics involved” in improving these programs. Therefore, it makes sense for finance and HR to look for ways to work together and improve the pay/performance process and its outcomes.