Financial rewards, in the form of bonuses and incentive schemes, are still by far the go-to mechanism to manage and recognise performance. Existing financial orientated incentive mechanisms are also heavily focussed around individual performance and management by objectives. It is easy to see why current financial performance mechanisms are at odds with Agile values. Agile thinking suggests individual reward systems damage team cohesiveness, contribute to poor employee engagement and detract from a team ownership culture. Agile organisations recognise that money is important, but recognise it is only part of the equation. The intrinsic factors of mastery, autonomy and purpose play an even more important motivating role in high performing organisations [research source; Daniel Pink’s – Drive & What Motivates Us]. Agile organisations are people-centric, understanding the importance of employee engagement and holistic health and wellbeing. Thus, leaders looking to build Agile enterprises must shape the performance management, recognition and rewards mechanisms to encompass more than just financial aspects.
Remove the topic of money as the most important mechanism to manage performance.
Money has been the central bargaining chip at performance negotiation time since the beginning of the industrial age. Employees need money and organisations need to be wise about how they spend money. However, placing money as the only ‘carrot and stick’ instrument when negotiating performance is now seen as outdated and in fact, can be divisive in fostering an Agile culture. In Agile organisations, pay is considered as a hygiene factor, and not the yardstick to recognise and reward individual performance. Remove the negotiation of financial reward against individual performance and the agenda is freed up to talk about team performance. This immediately reframes the conversation around how the team delivers value.
The velocity of change coupled with the increasing complexity of the business environment has changed the underlying dynamics of most industries, leading to disruption at an unprecedented rate. Scale and efficiency isn’t the winning combination anymore. Adaptability and innovation is the central competence that is winning these days. Complexity is solved by curious teams being allowed to experiment. Motivated individuals that are engaged, aligned on purpose and passionate about the value they contribute. The risk shackles are loosened and teams are allowed to think big/ differently/ experimentally. The key is understanding the importance of organisational culture, team dynamics and individual motivators have in creating an organisation that innovates iteratively and continually. A central part of this is selecting individuals with the right fit and understanding their intrinsic motivators. We know from Daniel Pink’s work that mastery, autonomy, and purpose drive Agile people. Once pay is accepted as fair, meaningful reward comes from interesting and new challenges, opportunities to learn, social context, alignment of individual and organisational values and sense of achievement.
Suggestions to approach holistic compensation aligned with Agile thinking
A Fair Base Salary
Base salaries: Agile role description are less descriptive and more flexible than traditional Job descriptions. Typically they contain value statements and allow the team and individual to adjust as needed. Agile teams are cross-functional and team members need to be flexible about what is expected of them. Often we hire on an individual’s ability to learn and master new and constantly evolving skills as well as their mastery of existing skills and experience. Hence, compensation should reward the individual’s ability to contribute rather than the role.
Enable team level authority to make salary decisions: Team leaders are empowered to make decisions on salary and increases depending on need. Centralised pay structures can be too rigid based around annual planning financial planning cycles. Decisions are peer-reviewed, transparent and can even include the great of the team. Organisational support comes in the form of HR expertise on decentralised compensation structures, data insights and leadership support.
Transparency and fairness in salary structure: Building trust and fairness means bringing a degree of transparency or universal understanding to pay structures. Sometimes personal negotiation, lobbying skills or another privilege has resulted in what is unfair or is perceived as unfair. Building confidence means recognising what erodes trust and the importance of living by our principles of aligning pay with value.
Reframing how we structure incentives
Individual and Team bonuses: Agile teams thrive on collaboration and adaptability, anything that blocks or structures performance away from these pillar objectives should be illuminated. Competitive individual pay structures pit employees against each other and do not reward collaboration and in fact, may work against teamwork. Bonuses that reward team value delivery enforce collaboration and team ownership. Definitions on value delivery to the team need to be flexible too. Those with high EQ often contribute in ways are less obvious but also vital to cohesion on the team.
Recognition beyond financial: What we recognise and appreciate feeds into how we shape our culture. Rewarding certain behaviours (whether informally or formally) contributes significantly to the behaviour of others. We get the behaviour we measure for.
Impactful appreciation must be aligned with corporate values. Each enterprise must find a suitable combination of low-frequency, formal recognition with more frequent and intimate personal acknowledgements. Once set, the power of recognition is put into everyone’s hand.
Rethink how we view benefits
- Personalise benefits: Benefits are subjective and a one size fits approach has its obvious drawbacks. A survey of employees and some experimental initiatives will yield some surprising insights into what people value. Flexible working arrangements, time off, remote working are some of the obvious benefits that certain cohorts will value. Scratch a little deeper and get creative with what can be defined as a benefit.
- Health and wellbeing: Stress, anxiety, burnout, and chronic health issues all contribute to unnecessary waste. Employee well-being programs are becoming now must have initiatives and overall cost saving.
Agile organisations relook at why and how to motivate employees that align to their people-centric Agile values. Extrinsic and intrinsic motivators are balanced to create a fair, motivated and innovative organisation that seizes opportunities.