Education

Shared risk-reward policy

R. Shekar | Updated on January 30, 2011 Published on January 30, 2011

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In spite of its best efforts, the company was finding it difficult to hold on to good people.?They left in times of distress; and they also exited when the times were good.?

So, what would make them stay became the concern of the board.?

The company was caught in a typical chicken or egg situation:?

The employees perceived a risk of continuity with the employer. They apprehended that immobility in their careers across company may mean either passing up on good assignments or erosion of their market premium. ?

The supervisors felt that unless the employees put in a minimum of 3-5 years in a designated field of knowledge, they can never be considered accomplished enough to sustain the levels of performance demanded by clients. Developing them or investing in training them would invite the grave risk of helping the competition.?

Data points

After much deliberation, the board defined the guidelines for both employees and the supervisors to de-risk their tenure with the company.?

The policy was aimed at one goal: remuneration and rewards must be indexed to the level of risk apprehended by both.? The policy plotted the five ?career stations' (X axis) the employees could possibly hold during their entire career span with the company.?

At each of these career stations, they were required to demonstrate the talent designated in the cells for each.?This is represented diagonally along the cells running across the table.? The cafeteria approach, defining the package of rewards, drew upon a mix of the reward mechanisms shown along the Y axis.?

It allowed for more cash in the pocket for the junior positions and proportionately higher earnings through employee stock options for those willing to serve the organisation for longer periods.?

The central challenge for the junior employees was that they could no longer keep the employer guessing.?From the options they formally exercised, their long-term intentions became amply evident to the employer.? For the supervisory workforce, the challenge lay in elevating their own supervisory practices.?

To match up to the expectation levels of productivity demanded from the higher wage seeking and higher risk taking workforce, they had to work harder.?

While the prospects for earning more money were welcome, the supervisors recognised the pressures for enhanced performance and direct accountability. ? ?

Will the 3-way policy help them improve upon the following two key indices of success they identified for themselves? Retention levels getting better? Profit After Tax per employee going up? These are the questions the directors have to ponder.

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Published on January 30, 2011
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