Benefits and Compensation

5 Components of an Effective Pay-for-Performance Program

5 Components of an Effective Pay-for-Performance Program

There are 5 major components of an effective pay-for-performance program:

  1. Evaluation forms. These can be differentiated by employee groups if necessary. The evaluation form should clearly show the rating options for each category or goal and overall ratings. The form should clearly define what constitutes each performance or rating level. (For example, what would constitute "outstanding" performance for one of the specific goals? What does the employee need to do to be rated as "outstanding" overall? This should be clearly spelled out.)
  2. Administrative manual or handbook for managers. It should be something managers can reference to ensure they're conducting the evaluations correctly. The guidebook should provide the rules for ongoing administration and effectiveness.
  3. Initial and on-going training. Effective pay-for-performance programs require consistent and ongoing training from HR at key points: when the plan is first introduced, when the plan is changed, and when employees are promoted into managerial positions. HR must also monitor how well managers are using the program and may need to hold refresher training sessions to remind managers of the process.
  4. Effective communication channels. Communication needs to occur both from top management to managers and from managers to staff. Communications should be both written and verbal. HR has a very important role in the process, acting as liaison, interpreter, and problem-solver.
  5. On-going coaching and feedback. Pay-for-performance programs can't be based solely on annual performance evaluations. Continual conversations are needed to support the program and to support employee development throughout the year. Effectiveness of the program is also based on ongoing coaching and feedback, Mary Rizzuti and Diana Neelman confirmed in a recent BLR webinar.

    On-going coaching and feedback between the manager and the employee throughout the performance period ensures that the employee is on track. These sessions also ensure that the manager reinforces the right behaviors by providing positive feedback, and that the manager provides coaching to correct areas that may need improvement. Ultimately, the goal is to enhance performance throughout the year in order to avoid surprises at the review meeting.

For more information on implementing an effective pay-for-performance program, order the webinar recording of "Pay for Performance: Keys to Engaging and Retaining Your Best Employees." To register for a future webinar, visit

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.

3 thoughts on “5 Components of an Effective Pay-for-Performance Program”

  1. It can take a while to get these programs up and running effectively so it’s wise to start now–before more employees start jumping ship.

  2. And you probably shouldn’t announce that pay for performance is coming until you’re pretty far down the road preparation-wise. Otherwise, employees can think it’s a stall tactic and become resentful and distrustful.

  3. It was a 5–4 deciadsion, with the libaderadals sidading with Symadczyk, and the conadseradvadaadtives sidading with Genadeadsis. It’s sad when these cases get decided along ideadoadlogadiadcal lines…even in cases where I agree with the final deicsion.

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