Creating an Effective Pay for Performance Culture

January 28th, 2008

At last month’s HR.com virtual tradeshow one of our customers gave a presentation about how to foster a performance oriented culture - one in which employees focus on the organization’s goals. Ron Bates, Human Resources for Harbor Group International had some great points to make about how HR can help develop individuals to adopt high performance attitudes, emotions and behaviors; ultimately fostering collaboration and teamwork.

Bates said that to effectively encourage potential, employers need to know exactly what they need from their people. This means identifying long-term potential through growth factors - not just job-specific abilities or past performance, and not mistaking potential or current job performance as readiness for promotion. They also need to align all organizational systems to support talent management.

One of the ways to do this is through an employee performance management system. But to be effective, the system must eliminate the focus on the review and have managers concentrate on performance improvement and employee development. To do this, the system must support 360 degree feedback or multi-rater/peer reviews, provide real time status on every step in the process, and allow managers to drill down into their organizations.

It should also include a compensation management system that will help the organization bridge individual performance and rewards, all linked to the employee’s contribution potential. Ideally the system will provide employees with a more accurate and fair compensation adjustments, based on appraisal scores and a documented performance matrix.

In this type of culture, Bates argued, an improved communication process leads to higher trust in the company and a better understanding of individual goals. Employees are more focused on clear expectations, measures of performance, and accountability. Increased engagement in corporate goals follows naturally.

According to Bates, tying compensation to performance creates a reward system that is structured to better recognize top performers. Employees perceive that the system provides fair compensation adjustments and rewards. As a result, employee retention improves, and the compensation budget is adhered to.

What are your thoughts - does your organization support a pay-for-performance culture, and if so, what are the outcomes for your bottom line?

Tags: compensation management, employee performance management, goal management, HR, reviews, talent management