Page 112 - HBR Leader's Handbook: Make an Impact, Inspire Your Organization, and Get to the Next Level

102 HBR Leader’s Handbook

the social contract: your compensation framework must address all these
competing concerns.
Many leaders simply try to avoid these questions by creating or perpet-
uating undifferentiated compensation systems (“just give everyone a 5 per-
cent raise”), by staying away from career discussions with their people, or
by just turning compensation over to human resources. And while that
may ease their discomfort, it rarely creates high-performing organizations,
because it means that good people often end up going elsewhere.
Instead, your role as a leader is to articulate a philosophy of incentives
clearly so that people know what it takes to be successful—whoever they
are and whatever their goals.

Make your incentive philosophy explicit
Your job as a leader is not to get into the business of designing compen-
sation and benefits plans. There are hundreds of expert consultants and
firms that can do this work for you, along with your own human resource
team, whether you’re a startup or a multibillion-dollar organization. But
in order for these experts to put together a plan that will help you achieve
business results and make people feel good about being part of your team,
you do need to provide some clear direction for how to decide on salaries
and bonuses, award promotions, and confer other benefits. That is what we
call a “philosophy of incentives.”
Even if you are not in a position to drive an incentives approach for the
whole organization, by sketching out a philosophy of incentives for your
department or unit (based on the organizational rewards system), you’ll
make your people aware of what behaviors and outcomes will be rewarded
and recognized, and what it will take to advance in their careers, and, con-
versely, what behaviors or results will have adverse implications for their
careers. Without that clarity, employees and managers will make their
own decisions about what’s best to do, and it might not actually be what
you want or intend.
Steve Kerr, an expert on reward systems and the first chief learning
officer for GE and then Goldman Sachs, in the HBR article “The Best-Laid
Incentive Plans,” describes “the folly of rewarding A while hoping for B.”