HR Management & Compliance

8 steps to implementing a pay-for-performance system in a small business

Pay-for-performance systems are not one-size-fits-all. While the general steps to implementation might be similar, the details will differ. Company size is one of the primary factors that will determine how the implementation will proceed.

There are 8 steps in the flow of pay-for-performance implementation and administration; we’ll focus on small organizations and how pay-for-performance implementation and administration might flow for them.

  1. Determine Needs. “Small companies of course often lack the infrastructure and resources that larger companies take for granted, but the benefit of small companies is that it is often much more clear to determine the needs of the business.” Sam Reeve explained in a recent BLR webinar. With small companies, it is ideal to have face-to-face interviews with a select number of staff and key stakeholders to determine the needs of the organization.
  2. Define Metrics. “Start with just a few metrics and then expand as the company gains confidence in forecasting and tracking.” Reeves advised.
  3. Set Goals. Whether large or small, all companies need to set SMART goals that together impact the company’s strategic objectives. SMART goals refer to goals with the following characteristics:
    • Specific—the goal is clear and understandable.
    • Measurable—the goal completion can be objectively measured.
    • Attainable—the goal must be reasonable, but still require effort to achieve.
    • Relevant—the goal must be aligned with the big picture.
    • Time bound—there must be an end date in mind that the goal must be completed by.

    Goal alignment is critical and should be an easier task with smaller companies where employees have a greater ability for line-of-sight to overall firm objectives. Leverage your team’s strengths.

  4. Track Progress. Small companies may not have the benefit of performance management software to track goals and progress, so the trend here is to have a quick weekly check on progress toward goals and objectives. In other words, keep a file of the employee’s job description and objectives for the year and use it weekly.
  5. Communicate Achievement. A culture of recognition begins with regular feedback. In small companies, employees often have access to senior management. The communication of achievement should occur on multiple levels that are appropriate for the company and culture.
  6. Reward Success (or not). Smaller companies may have limited resources but they have several advantages over large firms: namely that it’s easier to know your staff well and make rewards personal.
  7. Evaluate and Evolve. Ensure your performance process fits the culture. Raise the bar every year for your employees and for the process. Challenge yourself to find improvements in the performance process every cycle. Small companies can evolve quickly.
  8. Start Over (quickly). Don’t let too much time elapse between performance cycles. Keep employees engaged throughout the year.

The above information came from the CER webinar “Pay for Performance: Best Practices for Embracing the New Normal in Compensation Design.” To register for a future webinar, visit CER webinars.

Sam Reeve of Performensation Consulting is a global certified compensation consultant (CCP, GRP) with 15 years of experience in Total Reward Strategies. He is an expert in broad-based compensation and focuses his talents on enhancing performance through the effective use of incentive and recognition programs.