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Want to know how to inspire and retain employees? Get Pay for Performance right

Topics: Retention
Tess C. Taylor, PHR, The HR WriterThe hallmark of a successful organization is one in which employees happily produce top results each day and do this organically without a lot of “hand holding” from management. However, what is the secret to attaining this level of greatness?

The hallmark of a successful organization is one in which employees happily produce top results each day and do this organically without a lot of “hand holding” from management. However, what is the secret to attaining this level of greatness?

Pay for Performance can work well

It’s been proven over and over again that using a pay for performance model can help to retain and inspire employees in many unique ways. When employees feel that their pay reflects their work efforts, they generally respond in kind. But it takes a commitment from the human resource team to weed out any problem areas before they become sore spots for employees. Not continually monitoring the peaks and valleys of performance can lead to some disappointing results, even with a strong compensation plan in action.

Discovering Issues in Pay for Performance

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For any HR manager, it can be a frustrating experience trying to find the source of low performance in a single or group of employees. On the one hand are the business needs, and on the other are the needs of the employees. Not every employee is motivated simply by a paycheck. Some respond well to other incentives, such as praise from superiors or certain non-cash rewards. But, the one thing to count on is that a performance issue will spring unexpectedly out of an otherwise normal performance evaluation.

Some of these problems can include:

  • Employees are not connecting their actual performance to the compensation system
  • The performance review process is too complicated, biased or not detailed enough to make a difference
  • Start salaries do not support long-term career development or motivation for employees
  • Unfair performance metrics that are impossible for all employees to attain
  • Generational values that impede pay for performance offerings (no one-size-fits-all)
  • Incentives are outdated or have not been reviewed in a long period of time

Often, one of the first signs that a pay for performance strategy is not working is at merit-raise time, following the company annual performance review period. When their salary increase is discussed, employees seem apathetic to this process. It’s as if they have nothing to look forward to and their faces express this in no uncertain terms.

Other times, the signs come from the recruitment side of things, when quality candidates stop walking through the doors. Why? Because they are heading for the competition to take advantage of their more attractive salary and incentive plans.

Making Pay for Performance Better

Fortunately, there are ways to improve a pay for performance approach, despite these perplexing issues. It starts by determining what is currently going wrong; information that your employees are eager to share. To weed out pay for performance problems and get back on track, you can:

  1. Use an employee 360 degree survey and focus it on performance and salary questions.
    Get to the source of performance and pay issues by asking directly what employees want, and how they feel about their compensation as it relates to their work. A non-threatening survey that’s confidential and anonymous helps open up dialogue.
  2. Evaluate your current salary offerings against salary surveys by job types and industry.
    In order to remain competitive in the market, your company needs to keep a sharp eye on the latest compensation and salary surveys available. Employees who are well-compensated tend to stick around to become more productive.
  3. Boost your current incentive plans with offerings that mean more to your employees.
    Now that you have a clearer picture of what drives performance in your employees, the types of incentives (cash and non-cash) can be added to the mix. Update salaries for all new hires and existing employees over the coming year so that the company can retain competitiveness in the market. Make these increases meaningful to the employees who work hard to make the company successful.
  4. Communicate clearly your pay for performance policy to employees at all levels.
    Unless employees know what to expect in terms of compensation and incentives, there really is no point. Take the time to develop clear messaging that will go out to all employees in various formats, written and video work the best. Deliver them via emails, social networks, and via the management team directly to employees.
  5. Spot employee “cheerleaders” and promote them, while eliminating non-performers.
    While there are some ways to increase employee morale and productivity with a better compensation plan, the fact is there will be employees who are not going to perform well and those that will respond positively. Weed out the lowest performers if they are unable to prove their ability to keep up with performance peers. Identify and leverage your employees who rave about the company, promoting as much as possible from within.

Using the above steps, it’s possible to give a pay for performance approach a much better future. These are methods that can help to enhance employee productivity and raise morale in the workplace for organizational growth.

Would you like to get a more in-depth look at getting Pay for Performance right? Check out these two complimentary PayScale resources:
Tess C. Taylor
Read more from Tess C.

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Dan Belford
Dan Belford

The Ministry of Health and Long Term Care in Ontario uses short term Pay for Results ( Pay for Performance) as a funding mechanism for Emergency Departments. The Ministry establishes bench marks based upon peer group hospitals’ data such as provider initial assessment times ( when the patient first is seen by a MD, PA, NP). It is a good program and it can be very motivational for staff. However you must build into your plan the resources to add these resources into your based line staffing budget. Factors sometimes beyond your span of control can negatively impact the Team’s… Read more »

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