Sunday, December 21, 2014

whether performance incentive should be payable annually or lesser time

Following is the transcript from yesterday's discussion in HR Shapers group and co incidentally, the similar tweetchat happened in @plughr 
I believe both monetary and non monetary incentives are very good options for both organization and employees. For me, an employee Opting more performance based incentive is better in confidence and an assets for the organization. However, an organization should be honest enough to use this as a tool to pay. This should not be used as just a tool to inflate CTC. 
Following is the transcript which provides insight from many HR professionals 




Today Topic - Employees feels that paying performance bonus once in a year is not a good practice... It's should be quarterly or half yearly. Since in yearly model lot of employees lose out and employer gains....Should organisation need to really relook at this???

When the KRAs or Targets are set qtly yes this is possible.
If not pay as advance provided min threshold is achieved and adjust it at the year end after consolidation of yearly performance.
Otherwise not possible i think.


[18/12 09:13] ‪: πŸ‘ŒπŸ‘Œthat is good suggestion

[18/12 09:14] ‪: Why u say they loose out n employer gain?

Are u referring to people who resign in between perf period?

Govind Sharma: It can be. in metropolis healthcare, when I was working, we had KRA based incentive broken into quarter and annual. That makes sense and people feel that organization is incentivising them for performance

 : In tcs, there is quarterly performance pay model. Some part of the performance pay is monthly which is static and the quarterly one depends on the company performance,  unit performance,  allocation (deployment index) etc., Which is variable. But the maximum amount is decided in the ctc based on the last year employee performance (band)

: So, nothing is yearly and the total max is as per ctc inclusion.


[18/12 09:17] : I feel the organisations follow annual bonus payout also as a part if their retentio strategy....however with effective performance mgmt process qtrly bonus payouts are very much possible.


[18/12 09:17] : Well if a employee is in the comp for considerate part of the year and not at the time of payout he/ she is not eligible, hence he/she tends to lose out while employer gains


[18/12 09:18] : Hi All.... Good Morning...

This is an absolutely ' food for thought topic

Let me share my thoughts from an IT sector perspective... A quarterly performance appraisal would be work well more on the delivery side... Where employees rotate on their projects several times in year...

In fact, for delivery folks I would suggest appraisal be done at the end of their project completion + a half yearly / yearly appraisal to balance the org requirements.

[18/12 09:18] : In Highbar performance link pay at company level is yearly , however for Sales n presales team the individual performance link pay is paid quarterly


[18/12 09:23] ‪: My view is since it is yearly... Employee wait for payout Nd post thT attrition is high... Which is a concern point for any org... If it could be qtly or half yearly then attrition is more staggered.


[18/12 09:25] ‪: One more view point would be divide the bonus amount into 2 parts in ratio of 40:60 10% per quarter and remaining kitty 60%on yearly basis... Any views on this

[18/12 09:28] ‪ Let Ashish decide whether to continue this as topic for the day.


[18/12 09:33] ‪: Yes v going 2 continue wid this topic...getting very good input on group I as well...will keep sharing throughout day...


[18/12 09:37] ‪: Let's continue..its interesting topic...


[18/12 09:38] ‪ Today Topic - Employees feels that paying performance bonus once in a year is not a good practice... It's should be quarterly or half yearly. Since in yearly model lot of employees lose out and employer gains....Should organisation need to really relook at this???


[18/12 09:39]  As Vijay said earlier....If there is qtry kra decided 2 review then payment has 2b made....actually its more of CFO to CEO decision bcoz its big loss to their cash flow...


[18/12 09:41] ‪: As Aditi gave example of TCS, its a very good practice. But how many companies we have worked or know declare their rev details to public or employees? If its listed co its mandatory.

[18/12 09:47] ‪ In my current organisation, we have fixed PI, 1.5 times of basic. 
But u must hv to work for min 6 months in that FY for getting the amount on pro rata either he/ she quits after or before the payout time.


[18/12 09:48] ‪: Above all never ever use Performanc Than the whole purpose and seriousness is lost.
It all depends on how robust your system n processes are and transperency in the entire system.

[18/12 09:52] ‪: When it is named as performance bonus it means it has to be paid once the appraisal cycle is over. If it is to be paid quarterly or no annually than we need to have tools to measure performance too


[18/12 09:55] ‪: I guess we need to review two aspects. 1. variable Performance Pay as indicated in CTC 2. Purely Performance linked pay not linked to CTC or PROFIT sharing. Most orgns have 1. And as rightly mentioned by vijay unless details are public no one will know. For 1. It makes sense, cashflow wise to have fixed payout every quarter. PROFIT sharing may not be possible quarterly and organisations would prefer consolidation before announcing or sharing assumed profit. As for cycle of payouts having mechanism to track performance and report deficiencies would mean a highly structred process and support of technology. For SMEs its merely a call on paying to retain staff.


[18/12 09:58] ‪: Also a lot of companies have this as an annual component in their salary structure, however pay on pro rata basis.. So again employee loses though it only reflects in the structure. If its paid out on quarterly / biannually employees loss is comparatively lesser and employer is more fair. So at least at the levels where performance can be measured only quarterly basis. It should be paid out. Higher level people working on projects of longer duration can be paid yearly.


[18/12 10:03] ‪: Attrition is bound to be there whether u pay monthly/qtly/yearly. If u dont pay they will negotiate and get that from prospective employer if they are so precious.
Look into ur support systems and have policy. This involved cash flow issues too and as Ashish says need to involve CFO.
If your assesment are genuine and transperant peoplex accept any system. If not they willgive such excuses in exit interviews which we all know !


[18/12 10:03] ‪: Well, would like to break this in business needs process of administration and design. Every Ind has its unique business model and hence require different payment module, like for bpo you can pay monthly as you can assess perf easily, vs some projects base eng co whose projects time frame very from 1-4 yr hence need diff model. Based on needs one need to design your plan with objective kra to justify the pay. And when it comes to administration you need to communicate well so that employee gets the importance of such pay plan.

[18/12 10:04] ‪: πŸ‘

[18/12 10:06] ‪: πŸ‘

[18/12 10:08] ‪: Thats it Mahesh. Hence there is no ready made answer or copy paste should not be done. It all depends on industry to industry and company's financial status and their values.

[18/12 10:09] ‪: πŸ‘
[18/12 10:10] ‪4: πŸ‘


[18/12 10:15] ‪6: I support the yearly one atleast employees wait till that time to leave. Otherwise we would have lots them earlier. It's good from cash flow also. And as it's establish trend business is already tuned with backup plans.
[18/12 10:15] ‪: * lost


[18/12 10:16] ‪: Hence keeping parameters like Company, Dept, or team and individual performance and design whichever suits you. Also depends on how much %age of CTC is ur Perf Pay.


[18/12 10:28] ‪: So CFO convince CEO that paying qtr means out of flow at the same time CnB n Appraisal team need 2hv additional bandwidth to execute...logic is simple that it has 2b paid.....hving retention strategy based on year payment all sound funny n doesnt work infact more employee leave throughout year...HR stand no where n nobody listen 2 this crap in board room...its more of finance driven decision then HR....


[18/12 11:18] ‪: If one is entitled for 80%by eoy, then his /her quarterly payouts would also fluctuate accordingly


[18/12 11:18] ‪: Doesn't matter if it fluctutaws taleast he will get something... Its his hard earned money which is lost in yearly payout


[18/12 11:19] ‪: Quarterly and half yearly pay out is a good option as it acts as a motivator to push oneself hard for achieving targets quarter on quarter a the employee also feels it is fair


[18/12 11:22] ‪: Paying yearly serves as a retention hook..And holds back employees..It's a good tool for managing exits.. However Gen Z which operates in the "Here & Now"...Mode feels that this practise is regressive...My take is we could keep it flexible depending on the Organisation maturity, nature of industry and type of work...Also the roles would define the frequency of payout

[18/12 12:12] Govind Sharma: I disagree even when I was in retail we used to have monthly and quarterly incentive for all people both sales and non sales and this was motivating tool. If we are talking about pay for performance why to wait for whole year?
[18/12 12:12] Govind Sharma: I agree to Ashish


[18/12 12:13] ‪: It would make sense to have such system in org/ inds where the quartely goals are set & assessed for business n individuals. There it might  work as motivator. Roles that are chasing the Q results and contributing towards making Q possible could be looked at differently....like bd, sal


: Are there any organisations where there are no formal appraisals and performance pay?


[18/12 12:40] Govind Sharma: You will find such organization who want to exploit people so no appraisal and performance pay


[18/12 12:53] ‪1: Generally it would be SMEs not necessarily with intent of exploitation, it is due to lack of formal processes and structure

[18/12 16:02] ‪+: Today Topic - Employees feels that paying performance bonus once in a year is not a good practice... It's should be quarterly or half yearly. Since in yearly model lot of employees lose out and employer gains....Should organisation need to really relook at this???

[18/12 16:10] Participant : Good or bad can be assess by doing regression analysis of attrition rate change in pre and post pay period. If you find some real movement its time for hr to introspection.

[18/12 16:36] Participant: I agree for junior & middle level employes performance bonus pay Quarterly or half yearly but Senior level performance bonus should be yearly they will not have short term goals to review quarterly

[18/12 16:43] ‪Participant: Yup that's good point but they ultimately manage team and if team getting...leaders must get..

[18/12 17:27] ‪Participant: Agan it depends on type of business and purpose of payout...half yearly is still possible in most n industries hut qtrly would apply to very limited segments like BPO, RPO, sales etc.

[18/12 17:27] ‪Participant: Annual is done purely for retention and therefore paying it before defeats the purpose...I have had cases where we have paid exceptionally due to length of service etc or cases which could get into legal tangles...however by and large only annual payment is done

[18/12 17:27] ‪Participant: In investment banking the payout is a hook that keeps people hanging on. But I noticed that often people only hung on to collect before exiting.

[18/12 17:28] ‪Participant: True so there has to be effective monitoring for the payout with poor performance towards the end where a person only hangs on being factored into the final decision and payout

[18/12 17:28] ‪Participant: I think in high risk high return jobs qtrly makes sense...half yearly is more or less phased out at least in IT...those who pay usually give 30-40% in H1 and the rest is paid in H2 after completion of the year and computation of company financial performance is done

[18/12 17:28] ‪Participant: If there is qtry kra decided 2 review then payment has 2b made....actually its more of CFO to CEO decision bcoz its big loss to their cash flow...

[18/12 17:28] ‪Participant: True that's another important factor Ashish besides I'm sure a large lumpsum at the end of the year is a feel good factor mostly

[18/12 17:28] ‪Participant: I feel retention is just a garb... In the end its da company who is eating away dat money. People who have to leave ..leave anyway and the ones who hole back leave at the end...so gen the attrition rate is very high after payout. If this would have been a successful practice whole year movement would b less amongst employees which is not

[18/12 19:01] ‪Participant: Revenues and expenses are cyclic in nature and vary from qtr to qtr. business and accounting systems use annual performance as a basis of performance over targets. Annual payouts help determine how employees contributed consistently. If we make payouts quarterly or half yearly, then the KPIs have to be robust to measure performance and reward accordingly.

[18/12 19:01] ‪Participant: Yes, the periodicity of the disbursement of variable incentives differs based on the industry. From a business perspectives, in IT services, it is in the interest of the company to disburse it annually. Thats a no brainer. However from an employee's perspective it is preferred to release it quarterly or half yearly. And we keep getting these requests time and again during various surveys conducted. I think it would be great to implement at least a half yearly incentive pay out of course with a robust system and process in place to map KRAs set vs actual achievement. Mature companies with mature systems and processes could review this if it is not already being implemented.

[18/12 19:01] ‪Participant: Smart guy nego better wid future employer if not getting in current...to ensure he/she get that amt fm anywhere...

[18/12 19:01] ‪Participant: Some companies give it halfyearly or quarterly based on a median rating... If u leave in between u will only get dat but if u stay den the remainder is paid out at the end

[18/12 19:01] ‪Participant: Bonus is a representation of performance. Most of the sectors are driven by long term strategic achievement and short term tactical growth. True performance needs time to fructify, hence bonus should be annual, so that an employee understands that the gain is due to firm's strategic gain in terms of revenue, penetration, market share etc. Incentive or cash reward is meant for short term quarterly gains. So these two rewards have to be used intelligently and most of our communication and collateral gains like retention, motivation, wealth creation, etc can be built around without diluting the core concept ie value addition through alignment
[18/12 19:01] ‪Participant: It doesn't matter what people look at it like...it is orgs prerogative to decide what works for them...if it didn't work to retain people we wouldn't see higher attrition in q1 and q2 which is general trend...even if it works for 5% people it serves the purpose coz general industry attrition will remain 15-20% irrespective of the bonus periodicity being changed. Trend may vary depending on size of org and industry but the fact remains that computing it multiple times is also an administrative hassle which most wish to avoid especially if the org is not system driven

[18/12 19:02] ‪Participant: So CFO convince CEO that paying qtr means out of flow at the same time CnB n Appraisal team need 2hv additional bandwidth to execute...logic is simple that it has 2b paid.....hving retention strategy based on year payment all sound funny n doesnt work infact more employee leave throughout year...HR stand no where n nobody listen 2 this crap in board room unless HR agree himself pay annually or has 2much influence to change decision...its more of finance driven decision then HR....

[18/12 19:02] ‪Participant: I don't agree...everything cannot be people driven...esp not in the Indian market where demand supply gap will anyways ensure that employee churn remains a reality! Lets turn the ques on its head...How many people will stay if you make it qtrly from a retention perspective?

[18/12 19:02] ‪Participant: I don't see any major change...by ensuring a variable component at least there is some chance at retention. Associates will crib no matter what...the idea is to ensure a balance is struck and there is open communication...u pay them qtrly they will ask monthly...they will want more salary...but the reality is that may not be possible. We were paying half yearly n changed it to annually for a certain grade and above...there was no impact on attrition since the communication was done sensitively by HR. By saying it is crap and no one listens to HR we are undermining ourselves only.

[18/12 19:02] ‪Participant: Progressive practices are necessary but not without solid business logic...orgs exist to make money at the end of the day and find the right means to achieve these objectives...why else do all our orgs have different approaches and strategies? If one size fit all then we should all follow a common model

[18/12 19:02] ‪Participant: Best practice is bi- annual which we follow at our organisation however the catch is being globally driven we payout variable in November n may respectively. By which we have tried to cover up 2 things retention and payout on time. And Ashish sorry but when an HR has strong points management does agree to it but to what level they will bend will always be a question.

[18/12 19:02] ‪Participant: Well there are two aspects - perceived fairness of computation and market position of the amount. If we have to assign weight to these two variables to study its effect on exit, I would say perceived unfairness pinches more. Slightly out of track for the discussion, but come to think of it. If quarterly payments are repetition of unjust system, employees get exposed to repeated humiliation, so inherent strengths of reward turns out to be weakness for the institution!!! Why push the organization to such cross roads

[18/12 19:03] ‪Participant: Frankly speaking if you have to compare apple and oranges on strength of their value addition and convincing power, chief hr scores well above a CFO, but CFO can be an intelligent man to set the tonw if discussion by creating an effect of perceived loss for the stakeholders, in such conflicting objective, our role is to buy in collaboration from day 1 and not wait to fight a battle in March 31

[18/12 19:03] ‪Participant: Agree with Swapnakant. Variable pay is based on certain variables, which could be individual or team or company performance and hence the payouts have to be in line with the measurement of the variable parameters. If measurements allow periodic payouts, it should be capitalized. Periodic payouts have an advantage to motivate for maintaining good performance or improving sub-par performance.

[18/12 19:03] ‪Participant: When it comes to individual performance, the payout act as a reflection of their performance and hence quarterly feedback becomes,very helpful to keep the motivation going and even allow people to align and correct. Just doing a feedback meeting at the end of the year is post mortem and can ne highly demotivating.

[18/12 19:03] ‪Participant: True...buy in collaboration sound very good but in whole process v get convinced why employee don't deserve n company has all right to not to pay till end of yr... mindset has 2b changed to change its frequency... sometime it become worst when CFO itself managing HR....😜😎...


[18/12 19:04] ‪Participant: Typically variable or payout apart from salary wud be... incentive, bonus,esops nd referral,  amount..... I believe Incentive on defined KRAs is hard earned money by employee and should be paid asap based on Industry nd billing cycle of comp.  but it shud not b stretched too much so that it loose its relevance of getting it.  Quarter looks grt. I am on a view that it should even be paid at final settlement, if employee choose to leave  ..... Now Referral and Bonuses are strategic and can be paid as per company growth and strategy.  In my view  best would be to pay bonus and referral as deferred payment in next 3-6months.  It eases the burden on finance and increase avg. monthly payout for employee.  One time amount generally not counted as part of salary so people dont  negotiate much in this while changing companies.   So pressure gets mounted on next company to give higher salary but not promised variable.😜  Yes it may require some bandwidth from HR... but can be managed easily...


[18/12 19:04] ‪Participant: I feel this issue needs to be tackled as an industry and not looked at as short term...in the long run inflated costs are impacting everyone and hence the need to rationalize...it's good to create a strong EVP but equally necessary to ensure the industry remains in the game


[18/12 19:04] ‪Participant: Agree Ankur, not only industry, I would even go further to link type of job and relative grade of the employee, senior strategic resources and incentive model may not gel, but market facing, ops or sales people will do love to receive incentives, those who are covered by statutory bonus there anyway you need to pay it. Compensation as a tool has to be premeditated, and contractually should be like  a deal with individual

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