Pay for Performance 2

I’ve been thinking more about what I said about employees understanding their pay for performance program. Winning over employees and gaining their support for the program is essential. One key is drawing a clear line between performance and potential reward. The program must detail exactly what is expected of the employees and how these expectations can be reached.

But the consequences of meeting, exceeding OR falling short of required performance levels must also be defined. The formulas that determine the size of merit increase an employee will receive for certain performance levels can be quickly, accurately and consistently established using the employee performance management system. This tool gives both managers and employees greater confidence in the PFP concept.

A good EPM system will make appropriate compensation suggestions that keep managers on budget, but will still allow them to have the final say over merit increases. If it’s inflexible managers will become skeptical and merit increases will be too conservative to be effective. They’ll only provide moderate differences in compensation to top and mediocre performers. This dilutes the potential impact.

But if a company can find a way to really give rewards that differentiate between levels of employee achievement, a successful – and motivating – pay for performance program is possible.