Keeping Pay for Performance Programs Fresh

Yesterday we took a look at a survey by Willis Towers Watson^® that suggested that pay-for-performance programs aren’t doing what they are supposed to. The primary reason? These programs are really just annual increases disguised as pay as performance, and everyone is being rewarded—not just those who perform well.

When it comes to pay-for-performance programs, the most important part is actually rewarding performance. Just because some of your workers might feel jealous that their hardworking coworkers are getting bonuses does not mean they have to be rewarded too. The whole point of these programs is to incentivize workers, which vanishes if everyone receives a bonus regardless of merit.

Today we’ll take a look at the objectives and methods of creating a pay-for-performance program.

Why Use Pay-for-Performance Programs at All?

The survey in yesterday’s Advisor pointed out a number of situations where employers had lost sight of the purpose of these programs. Here are some of those objectives:

• Identifying a limited number of critical behaviors that are vital to the organization’s ability to meet its goals;
• Clarifying the performance measures expected of employees and those results considered essential to the success of the business;
• Seeking honest feedback, as employees perform better when they are allowed to speak openly;
• Applying uniform performance standards that assure fairness and eliminate confusion;
• Giving employees a stake in the process by encouraging them to help set their own performance goals and assess their progress in meeting them;
• Making performance management an ongoing process that reflects changes in the business;
• Gathering information for succession planning and the development of training programs by identifying employees who have the interest and potential for advancement;
• Improving coaching by encouraging supervisors to observe an employee’s job performance and compare it with performance standards on an ongoing basis; and
• Providing a tool to determine wage adjustments based on a worker’s contribution to the organization.

Getting Started, a Basic Introduction

In general, following the below steps is the best way to get a pay-for-performance program off the ground.

• Identify the key behaviors that will add value to the organization. Start with the big picture. Does the organization need to grow or does it need to recharge and regroup after a period of financial hardship or significant change?
• Link any abstract expectations directly to concrete examples in the job. If key expectations have been identified and communicated on an abstract level (e.g., “maximize revenue, improve brand loyalty, provide best-in-class customer service”), it’s important to ensure that there is a clear and logical link between those expectations and the key tasks and responsibilities in each employee’s job.
• Set reasonable performance standards and achievable goals. Finally, once the organization’s larger goals have been identified and linked to the specific tasks of each employee, it is time to determine the extent to and means by which each employee should meet these goals in order to be successful—or exemplary.
• Objectively apply those standards to each employee. Let’s take a look at what we’ve done so far: We’ve identified what the company needs to succeed; we’ve linked those company needs to the specific roles of each department, job, and employee; and we’ve considered some reasonable and meaningful standards by which we can measure success. Now we are ready to apply those standards to existing staff.