The pay for performance model is innovative and used by organizations depending on their goals, budget, size of company etc. Essentially the pay model serves to motivate employees to perform better and get paid higher.
The model of pay for performance is used with compensating employee salaries and is a mature and complex model driving talent retention and boosting employee engagement as compared to the systematic entitlements model. It has several forms that are discussed below.
Some such variable examples of pay for performance plans and pay programs are
Pay for performance compensation can come in many different forms depending on an organization’s budget, compensation philosophy, and organizational goals. But only a few organizations have succeeded in exploiting the usefulness of an effective compensation plan and having a competitive pay for performance model in place.
Though the concept of pay for performance is attractive and favours many companies, it is still not achieving and driving performances in groups or individuals to its fullest potential. The reports from a survey conducted by Willis Tower Watson’s Talent Management and Rewards Pulse reaffirmed this.
The survey also noted that employees were not clear on the types of pay for performance plans, measurement of merit and did not see eye-to-eye with their employer’s merit-influencing values. Two-thirds of the employees felt the managers were using factors like skill and knowledge in their current role as indices for decisions related to pay. A little less than half felt the performance indices were not taken into consideration at all for differential pay.
The tools and benefits of pay for performance models are great for reward and recognition programs, driving employee performance and more especially when they are well-designed and implemented well. More so, when performance can be an ambiguous goal and when company goals are not aligned with the right performances. Hence a lot of effort and thought is required to ensure that performance is properly defined, and managers are driving the right performances aligned with company goals.
Implementing such effective pay for performance models can use several tricks and best practices to succeed. Since employee performances are either qualitative (Ex: customer satisfaction, sales, employee productivity, engagement etc.) or quantitative (Ex: accounts, programming, administration etc.), it is easy to develop a flexible model that can quantify performance and link such performance to recognition through rewards in a manner suitable to company goals.
While the objective of rewarding employee performances with a pay for performance model is laudable, it is best to ensure that the structure and performance themselves are aligned to meet the departmental and organizational goals. Consistent and fair policies on measuring performances and compensating excellent performances are the crux of the matter. Tools from the SpriggHR’s Compensation kit should help in reporting, tracking the activities that are to be compensated and provide a linkage to the pay-for-performance model. A consistent approach means linking the employee performance to the bonus allotted and making adjustments regularly based on performance monitoring.
The pay for performance model rewards the performers and drives employees to stay motivated and perform better. There are various models available that can be aligned to suit organizations. However, it is critical to follow best practices and a performance-measuring model for apportioning benefits aligned to both employer and employee goals.
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