It pays to be fair
By Peter Lee
SMALL and medium-sized enterprises (SMEs) are often perceived as low wage-payers because they are not large enough to use sophisticated and systematic wage techniques.
But while SMEs are more conservative than large companies on basic or fixed wages, they are known to be generous when it comes to paying bonuses during good times.
Unlike large companies, SMEs practised “flexi-wage” long before it became popular after the 1985 recession. SMEs also continue to lead their larger counterparts in performance appraisal. Over the last 60 years, the issue of rewarding and paying employees has become a subject of much study and research. However, despite the many theories and techniques developed, performance appraisal is still very much an art.
In other words, there is no single formula which companies can adopt. Much depends on factors such as the work itself, the kind of individual and work behaviour required, the stage of growth of the business or organisation, as well as the cultural characteristics and preferences of the owner and manager. In general, all companies have to pay wages according to the degree of job difficulty and how well the job is performed. Of course, the market supply-demand for the specific skill also has an impact.
Wage practices vary in the extent to which companies adhere to these fundamental principles of job difficulty, performance and skill scarcity. Large companies prefer to use impersonal and systematic techniques such as job description, job evaluation, wage surveys and performance appraisal to decide how much to pay their employees. And while they are more systematic and better than SMEs in defining job worth, they are seldom any better when it comes to appraising performance. This is where most of the problems arise.
Performance appraisal is an Achilles heel. It troubles most managers and supervisors because of the conflict between perception and expectation. It is almost impossible to get it right, despite the use of sophisticated quantitative and qualitative measures. Considerable experience, trust and judgment is needed before performance appraisal can be applied fairly and consistently.
Managers in large companies are usually in such a hurry that they do not take the time needed to build up this experience, trust and judgment. They soon find out that it is easier to “play politics”, manipulate the numbers or rely on their authority to push things through, rather than try to be honest and objective. This leaves many employees feeling that the management, despite the systems and techniques, still resorts to favouritism. Hence, it is who the manager likes which determines who gets the biggest bite of the cherry. As such, many “unrecognised” good performers leave large companies for smaller ones, where they can be more effectively recognised and rewarded. This fallout exists everywhere - in the US, Europe and Singapore.
Traditionally, SMEs do not use job descriptions to clarify duties and responsibilities, although more of them now do so because employees today expect greater transparency in what is expected of them. What SMEs lose out in job definition, they – successful ones at least – gain by trying harder in performance appraisal. Realising that performance appraisal will always be a judgmental process and not just a matter of setting targets and measuring outputs, they set out to fine-tune the process by checking with colleagues, other bosses, and even customers and suppliers, rather than relying on the numbers or immediate boss for performance input.
Smart SME bosses never lose sight of the real performers. They know who are the “fair-weather” performers: people who work only when the boss is around. They know that while it is possible to “fool the boss”, it is much more difficult to fool your colleagues, your customers or suppliers. From informal but often elaborate networks at grassroots levels as well as among other bosses and major customers and suppliers, the SME bosses check around regularly on who is really contributing and who is not.
This is what large companies call “360 degree performance appraisal” or “balanced scorecard”, which many are now trying to develop, albeit, on a more systematic basis.
Thus, just as SMEs themselves are adopting the more sophisticated and systematic wage practices of the larger companies, paradoxically, the large companies are adjusting to the SMEs’ well-rounded judgments on performance and contribution.
Savvy SME bosses, consequently, are trusted by their employees for fairness in rewarding those who really perform rather than those who only know how to impress. Of course, such an informal process may break down when companies grow bigger.
is often the reason why when SMEs grow, their wage systems fail because
the bosses cannot continue to exercise this informal but rounded
performance assessment judgment. In this respect, small is still