Rewarding good behaviour, we look at performance based pay systems.

For most employees the amount they are paid and the increments received depend on seniority, cost of living, manpower availability and their or their unions negotiating strength. However, over the last few years more employers have been moving to pay increases that relate to levels of performance, primarily as a way of rewarding and motivating employees.   In a tight labour market companies have to find creative methods of attracting and retaining talent that has a limited effect on overall labour costs.  Additionally clever businesses are recognising that the human capital is all important in the maintenance of a company’s competitive advantage.

There is still much debate as to whether performance based pay is effective in improving motivation, productivity and performance. Some feel that management of the scheme can be too time consuming. That far from resulting in greater productivity and performance the schemes actually reduce it by discouraging team work and engendering a belief that it’s not what you do but how well you get on with who you know that counts.    Performance pay schemes can be too complicated and difficult to understand which can lead to the feeling of unfairness in distribution of awards. Many schemes don’t recognise that an individual’s performance may be dependent on factors outside the employee’s control.

On the plus side, performance pay schemes can provide clear objectives for employees and give them a greater understanding and buy in to the company’s objectives.  By linking pay with achievment not longevity, employees can feel better valued and more motivated.  By rewarding those that achieve, a well designed scheme rewards high performance while effectively identifying and dealing with poor performers. 

Overall a company culture based on performance can be developed and employees are more likely to focus on what they need to do to improve.  The discipline of setting goals can improve the overall consideration of productivity/performance equalling results and provides a direct incentive for employees to achieve defined work targets.

For a performance pay scheme to work it must be aligned with the company’s objectives, well designed and implemented by trained managers.  The performance measures used should re-inforce motivation, be easy to understand and clearly communicated.  Any bonus payment should be a one off and related to company success.  The scheme should not increase labour costs but be flexible enough to accommodate a downturn in business.  The monetary reward should also be part of a more general reward scheme that might include training, promotion, consultation, career planning and development plans.

The performance criteria should measure only what is really important to the role, and relate to an appraisal system designed to offer feedback to employees and managers.  As with any initiative, employees should be consulted during the design and implementation.  Only they can tell you what type of reward they would find most motivating. 

Finally take time to consider the nature, frequency and impact of the type of reward you favour and perhaps most importantly what ever performance based system you choose, make sure it is achievable.