According to the remuneration consultant, forced classification of employees should not be used

Rewarding it’s not rocket science, but it still often goes into the woods.

Compensation consultant Samuli Sistonen can concisely list the features of a functioning incentive system.

He is also able to quickly tell what is wrong with the incentive system based on forced distribution. HS information according to Nokia has, at least on some level, begun to mechanically classify employees into good and bad.

Sistosen according to a good incentive system is one that genuinely encourages good results and performances. It must also be fair.

“It must have clear and challenging goals and metrics against which performances and results are evaluated.”

There can be no more than four to five goals.

The goals must also be ones that the employee can influence with his own performance. In addition to that, there must be a slightly larger set of common goals, so that employees do not start maximizing their own performance at the expense of the whole.

“In management positions, it typically means one’s own responsibilities and one more. That is, the remuneration is affected by the goals of one’s own area of ​​responsibility and the goals of the organizational level above it,” says Sistonen.

According to Sistonen, if receiving a reward depends solely on the overall result of a large company, the incentive effect is non-existent. The possibility of an individual employee to influence the company’s result is usually very limited.

Incentive bonus the maximum level must be large enough, at least half or one month’s salary annually. The goals must be realistically achievable.

But the goals must not be too loose either. If the incentive reward becomes automatic, it no longer motivates, but can, on the contrary, become an achieved benefit.

“If the automatic bonus is not achieved in one year, a terrible halo will arise from it.”

“Everyone knows the top performers and underperformers in their own organization”

Fact is that there are differences in employees’ competence and performance. According to Sistonen, companies should be able to handle them in order to reward them fairly.

“Yes, it is possible to evaluate the competence and performance of even an expert. Everyone knows the top performers and underperformers in their own organization,” he says.

On the other hand, according to Sistonen, classifying employees into good and bad according to a mechanical normal distribution is old-fashioned and nonsensical.

HS reported on Monday that Nokia’s new CEO Justin Hotard would have at least on some level implemented such a system in the company.

A forced normal distribution means that some employees are classified as top, some as poor, regardless of their objective level of competence and performance.

Forced the classification was created by the legendary director of the successful American company General Electric (GE). Jack Welch already in the 1980s. At Welch’s GE, a tenth of the workers were classified as weak each year and fired.

The practice quickly became common in US companies, but in the last 15 years it has largely been abandoned. GE also abandoned it ten years ago.

Sistose also has experience with the system.

“I myself have led a five-person team at a consulting firm that had to be placed on a Gaussian curve. It was a ridiculous exercise. You had to put someone in each compartment.”

According to him, evaluation curves can at best help to calibrate evaluation criteria, for example between teams within the company. In this way, the evaluation of employees will be of a more uniform quality.

“But forcing a normal distribution doesn’t make sense. There are top teams where everyone is top. And teams where everyone is a bit weaker,” he says.

Sistosen forced distribution in American companies even led to the fact that managers started to recruit “sacrificial sheep” into their teams, who could be fired at the end of the year and keep their own real team together.

Arbitrary dismissal is not allowed in Finland, but also distributing incentive bonuses according to the normal distribution per team would lead to an unfair outcome.

“In general, management has gone more in the direction that performance management is daily or weekly, and not an evaluation that takes place once a year,” says Sistonen.

In management, the focus is on development and, for example, how the know-how of top performers can be shared with others.

You have to look back enough to be able to clearly justify why something is rewarded more than others.

Same will soon apply to the salary in general.

The salary transparency directive, which will enter into force in June, means that the employer must be able to justify to the employee why he does not receive the same salary as those working in the same position or at the same level on average.

“This opens up a discussion about rewards, which is still taboo in Finland,” says Sistonen.

“We need to define what the performance requirements and skills are for different positions: in the work of a journalist, in the work of a consultant, in the work of a manager. There is still a lot to do here.”