How to establish a sustainable strategic compensation program and motivate your employees to achieve goals.
The success of organizations is directly related to their ability to transform their competitive strategy into results through human capital. Currently, people management in organizations is a priority topic in management meetings due to its potential for creating value for institutions.
According to Priscila Nogueira, director of strategic alliances at Stratec, companies that already have management systems implemented with broken-down guidelines, goals, and action plans need to positively reinforce employee behavior so they commit to their goals, making the strategy happen day-to-day.
Guilherme Barbassa, director at Stratec, states that the purpose of strategic compensation is from the perspective of corporate governance. “Strategic compensation is a pillar of corporate governance as it enables the alignment of interests between employees and, ultimately, shareholders,” he says. According to him, this alignment minimizes the agency costs of companies, that is, the hidden costs when a shareholder delegates company management to the executive team.
It is known that strategic compensation, by generating reinforcement in the form of a tangible benefit for the employee to achieve their goal, helps the organization meet its global goals. However, it is important to remember that strategic compensation should not replace constant feedback, individual tracking, and day-to-day people management. Furthermore, corporate communication, management transparency, and the practice of organizational values are not replaced by variable compensation, which should therefore be considered as just another change management tool.
“I particularly like compensation models that blend individual indicators, which reflect the individual's performance in processes over which they have authority, with corporate indicators, which allow the employee to perceive their contribution to organizational results. This way, internal customer-supplier relationships are also valued,” says Priscila.
It is important to emphasize that strategic compensation is a compensation model linked to business development, where employees receive extra pay for their contribution to the organization's success. Therefore, to be successful, the strategic compensation system must be based on clear criteria, as objective as possible. All companies that have already evolved in their management system and already have goals, whether they are skill-based, knowledge-based, financial, or operational, that can be used as criteria for compensation, and are capable of measuring and monitoring these goals over time, can successfully implement strategic compensation.
Priscila also points out that for employees, the benefits can be many, such as the pursuit of new knowledge and skills, greater willingness to take risks, a sense of belonging, and, of course, higher compensation for their efforts. In the case of the company, it exchanges cost for value creation, as the outlay will be accompanied by results.
“I believe the biggest challenge is defining the compensation system, meaning what to compensate and how to compensate. The second challenge is tracking results over time, making the attained results visible, and supporting employees when they are not reaching their goals. Without this, strategic compensation will always be an intention, and not an effective tool to support companies in achieving their results,” says Priscila.
According to Barbassa, there are several practical issues that hinder the efficient application of strategic remuneration in companies. One of these issues is the periodic compilation of data. “Generally, HR is the department responsible for this, and these areas are not equipped or structured to compile indicators and projects periodically. They only do this when the bonus payment is due, which is once a year. However, this is counterproductive to the purpose of the project itself, because if employees don't receive feedback on the status of their bonus, they won't take action to align their efforts with the company's goals. So, they receive feedback at the end of the year, but it's too late for the program to have been fully effective,” he emphasizes.
Stratec's Strategic Management and Individual Performance systems provide tools that support goal deployment and daily monitoring. With the use of these tools, each employee has transparent access to their performance progress and to the organizational performance. “This transparency leads the organization to create a results-oriented organizational culture. Thus, the demand for results ceases to be hierarchical and becomes lateral, since the failure to meet a colleague's goal can also impact my bonus,” states Guilherme.
It is also possible to develop and monitor action plans to achieve goals from these systems, in a continuous learning process about what yields results and what does not. Furthermore, depending on the organization's policy, each employee may have access to their colleagues' performance, generating an internal collaboration network within the organization.
