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In this video, (the third of three) Steve Lunn talks to Phil Jones about how he changed the incentive and reward system at Anglian Water using the Strategic Balanced Scorecard Approachas a central part of their Transformation project.

A significant part of the transformation programme carried out at Anglian Water, was changing the incentive and reward structure.  Of course, changing such arrangements is an emotive topic.

The organisation had an established reward system based primarily on individual objectives.  The intention was to change this to improve joined up working and increase overall corporate responsibility by moving to a system primarily based on corporate performance with a smaller proportion based on team, division or individual performance.

The new arrangement was that the executive board owned the corporate balanced scorecard which represented their contract with the Board.  At the next level each Directorate would have their strategy map and scorecard which included their objectives and targets.  Some short term and some longer term, perhaps over two years.

Over the first six months the executives and directorates confidence in the objectives, measures and targets, and the reporting mechanisms, grew as the Balanced scorecard was rolled out and adopted.  This put the transformation team in an excellent position to put the case for changing the incentive and reward scheme.  If you are comfortable with your objectives and performance management approach your strategy maps and balanced scorecards provide, why would you have incentives that were based on something else?  If people are comfortable with the balanced scorecard concept, cascade of objectives and measurement mechanisms, then they should not be uncomfortable with the overall incentive mechanism based on corporate performance.  If you are happy with the approach, why not have your incentives on that same basis.

This allowed the case to be made for changing the incentive scheme to one much more based on corporate performance, deliberately to align behaviours and also encourage joined up thinking and working across the directorates.

Of course emotions play a part.  It managers did well in the past under the old regime they would naturally be concerned that they would do as well in the new arrangement.  Initially it is seen as personal and emotional.    However, building their confidence in the system helped gain acceptance.  Of course there had to be a percentage of directorate performance to reflect their local performance, but the overall effect was to play more as a team.

The final piece in the incentive and reward jigsaw was to change performance related pay at all levels in the organisation to corporate performance.  This way, senior managers have to articulate how people fit into the corporate whole and how they can contribute.  When people can see this they can feel that it is fairer to have their performance related pay (PRP) based upon overall corporate performance rather than only individual objectives.

There is more information in the case studies section of our website