After implementing a pay-for-performance program, how do you ensure it is effective? How do you assess it? Can you improve its effectiveness even with a tight budget? These are just a few of the considerations for HR professionals after a pay-for-performance system has been implemented.
Pay-for-performance: How to ensure your program is effective
“Ultimately, how can we effectively link pay and performance? You need to ask yourself a number of key questions that reflect on your organization’s ability to assess the plan.” Mary Rizzuti and Diana Neelman told us in a recent CER webinar. Is your organization able to:
- Accurately evaluate employee performance?
- Establish quantitative goals and objectives?
- Measure achievement of goals?
- Use goal achievement and performance ratings to tie results to pay actions?
- Differentiate awards or merit increases based on the level of performance?
- Empower employees through effective communication and feedback?
Pay-for-performance: Continuing effectiveness when funds are tight
“Having a limited budget is always challenging to differentiate pay based on performance ratings.” Neelman noted. “From an HR perspective, if we track performance ratings and ensure that our managers are honest in their assessment, we can have some degree of differentiation between the performance ratings.”
In other words, using pay-for-performance can be a good way to target raises to the best performers when budgets are tight by ensuring there is differentiation between employee ratings. Here are some other tips for a tight budget:
- Determine whether the pay-for-performance system has too many ratings, which can hamper true differentiation. Consider the use of three ratings. This provides the best way to use limited funds.
- Determine the intended distribution of ratings and ensure managers understand.
- Don’t give increases to poor performers. This is tough to do when there is an entitlement mentality, but crucial to success of the program.
Is implementing pay for performance worth it?
This type of system can be a lot of work to implement, but it’s often worth it. Here’s what happens when you’ve designed and implemented a successful performance management program. It acts to:
- Motivate employees
- Provide a sense of direction
- Instill a sense of contribution
- Enhance professional development by helping to identify talent and future potential
- Provide an opportunity for corrective action before it’s too late
- Hold both managers and employees accountable for performance
“Performance management . . . is a tool in your compensation toolbox . . . that will enhance your organization’s ability to identify your top performers and to mentor those employees who show potential—and ultimately to be able to guide those employees who need help with their performance.” Neelman concluded. “Ultimately, we want to be able to tie the performance management program to achieving the key objectives of compensation: by helping to retain employees, we want to keep their focus and attention on performance and motivating them to achieve higher levels of performance.”
The above information is excerpted from the webinar “Pay for Performance: Keys to Engaging and Retaining Your Best Employees.” To register for a future webinar, visit CER webinars.
Diana D. Neelman, CCP, is a principal and senior consultant with Compensation Resources, Inc. (CRI) , in Upper Saddle River, New Jersey. With over 20 years of collective compensation and HR experience, Neelman is responsible for business development and project management in all areas of compensation, consulting to a variety of industries on salary administration, performance management, and incentive compensation, with a specific emphasis on executive and general compensation matters within not-for-profit organizations.
Mary A. Rizzuti, CCP, PHR is a principal and senior consultant with Compensation Resources, Inc. (CRI) . With over 15 years of compensation experience, Rizzuti serves as project manager for consulting projects. She also leads CRI’s Training Institute, delivering customized compensation and human resources training for senior leadership and human resources professionals.