Making a Success of Pay for Performance

September 26th, 2007

The knowHR blog has a great post on why pay for performance programs fail. Some of the reasons include a lack of true performance differentiation, and weak manager feedback. The blog correctly states, “If everyone’s performance is the same, then just pay them all the same and don’t waste your time with all that planning and agonizing.”

But we know that in most organizations top performers should be incented by pay merits - it benefits the bottom line in many ways. However, something that we see often is a missing link between organizational goals and personal goals - which is really what should drive a PFP program. If companies are really going to do PFP they need to get executives to communicate it across all employees, and give rewards that actually match personal contributions. The program must detail exactly what is expected of the employees and how these expectations can be reached.

We’ve said it before but it bears repeating: A good talent management system should be able to set this up. You should be able to manage your system so that organizational goals are clearly communicated to employees and are aligned with individual goals. This increases employee investment in the PFP program because employees see how their individual achievements benefit the organization.

Behavioral and job related competency management should also be tied to organizational strategies so that each employee is not only rated on their performance but sees how they contribute to the organization. It also gives employees a clear understanding of what is expected of them. If the employees are improving the skills and competencies they need to help their organization succeed - and assessments are validating they not only “took the course and passed” but they’ve applied it to meet corporate objectives - this should be recognized This understanding builds a sense of purpose in the workforce and strengthens employee support for the PFP system.

http://www.knowhr.com/blog/2007/08/20/five-reasons-pay-for-performance-fails/

Tags: employee performance management, HR, pay for performance, talent management