Monday, April 20, 2009

Pay for Performance-Really?

We have all talked about paying for performance for a very long time. It is interesting to me that when I bring the subject up with clients or with my students, I see rolling eyes and smirks.

I think Pay for Performance will be the new Mantra and companies are not going to be kidding this time.....With what has happened in the last few months with companies folding and executives being rewarded for poor performance, we need a different mindset. NO RESULTS, NO MONEY

I believe what kills pay for performance is sheer commitment. Let's face it, managing a true pay for performance system that is integrated from competencies and behaviors on performance appraisals straight through the compensation system is hard. This is especially tough when your company has an entitlement culture rather than a high performance culture. Training managers on how to execute a performance system is also hard.

With that said, the hard work is worth it. Rewarding high performers is crtitical to their retention. There is a lot of research on how much more value high performers bring to the organization. By rewarding marginal and low performers we are sending the wrong message and our high performers get demotivated.


We are working with a client right now, that is truly committed to a high performance culture and will be rolling out its true pay for performance system very shortly. The driver behind the change was that this company is facing different external challenges that will possibly force them to enter a more competitive environment where there will be more choices for the consumer for their particular product. They need a work force that is customer focused and results oriented. This transformation will not happen over night and many months have been spent on data gathering and research. The key to the success of this project is that the top executive is TOTALLY committed to its success and has a very clear vision of what needs to happen.


With budgets shrinking, we no longer can afford individuals that half perform or have bad performance. Our salary dollars are very precious and we need to spend those wisely.


I believe the following are key points in a true pay for performance system:


1) Definition of success has been determined and is linked to organizational goals

2) Competencies and behaviors are clearly defined (performance appraisal) and communicated

3) Salary structure has clearly defined compa-ratio zones outlining where high performance occurs

4) Managers and employees are trained on how they are measured

5) Deficiencies are addressed in a spirit of continuous improvement

6) Results are tracked and success is celebrated


So through away your merit increase bell curve and replace it with:


High performance= increase

Meeting Expectations-Thanks for doing your job-no increase

Low Performance-We will work together to fix that-no increase

Bad Performance-Find another job-no increase


Call to action: Do you have a true pay for performance system? If no, start by having a conversation with your top executive to see how committed he/she is to high-performance.

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