Call for business performance incentives

In an interview, Industrial Psychology Consultants (Pvt) Ltd managing consultant Mr Memory Nguwi said performance-based pay was critical to ensure organisational viability in the present environment where companies are operating below installed capacities.

“In a challenging economic environment like ours, the only way to ensure the continued viability of companies is to focus on performance and reward it accordingly.

“What should be on the minds of executives is how they can effectively measure and manage performance at all levels within their organisations. Organisations need to design performance incentive schemes that drive business success.

“The best option in rewarding employees is to invest in the development of variable pay schemes that are directly linked to the achievement of the company goals,” he said.

Most Zimbabwean companies are still utilising routine performance measurement systems that have no bearing on the business strategy of the respective organisation.

Economists contend that it is prudent for businesses to strive at all costs to link the measurement of performance to the reward systems, that is, incentive schemes should basically reflect the heightened interest and new thinking in measuring performance.

One such scheme is called the Financially Funded Goal Sharing Scheme. Under this scheme, payout potential is determined by a measure of profitability, just as in profit sharing.

However, the payout is conditional, that is, it is tied to the achievement of additional goals that are more meaningful to and controllable by employees. The latter will have to earn their profits by achieving various performance goals.

Added Mr Nguwi: “Compensation models that are dependent on the base salary served our country well in the past. Now is the time for industry to design performance incentives that drive business results.

“The only way to guarantee future success is to focus on issues of performance and rewards. Embracing an approach such as the balanced scorecard that gives a holistic view of the company’s key performance drivers is a good starting point.
“For incentive schemes to succeed, organisations need to institute a complete culture change in the way rewards are managed. There is need to build a performance culture that will help erase the historical emphasis on base salary that seems to have permeated remuneration practices in the country.”

There has been a sharp increase in the number of companies operating employee profit share schemes.
Profit sharing schemes are normally established to encourage greater financial performance and the need to lower relative labour costs.

However, while the use of incentive schemes such as profit sharing is prevalent in a number of organisations, the impact of such schemes on employee behaviour and company performance remains unclear.

There have been reported instances in which some local companies have withdrawn such schemes because they could not sustain them in the face of shrinking profit  margins.