Make Your Pay-for-Performance Philosophy
Clear to Employees
There are plenty of good reasons why you might NOT
want to link pay to performance. For example,
There are few major differences in how well
employees perform their jobs.
It is very difficult to measure differences in
There is not enough money available to make a
big enough difference in how average and above average performers are
Linking pay and performance is inconsistent
with management's philosophy.
Employees, however, typically assume that above
average performers will receive higher pay increases than average performers.
Management, therefore, needs to be up-front with employees about whether or not
they intend to try to link pay to job performance.
Use Bonuses Rather than Pay Increases
Pay increases are much more expensive than bonuses
because they commit management to pay the increases every year. One-time
bonuses are a less expensive approach that can achieve the same motivational
Rate Supervisors on How Well they Rate their
Supervisors often sabotage the organization's
efforts to improve the pay of good performers by giving everyone in their work
group high ratings. Management needs to train supervisors how to conduct their
performance ratings. They then need to analyze the ratings of supervisors and
base supervisors' pay, in part, on the quality of the ratings they give to
Train Supervisors How to Talk About Pay
Many supervisors undermine their organization's
pay for performance efforts by saying things like,
"I wish we could pay you
more, but all we can do is increase your salary by 5 percent" instead of,
am delighted to tell you that due to your excellent performance this past year,
we are increasing your salary 5 percent."
therefore, need to be taught how to convey the appropriate message that their
good performance is being rewarded.
Use Objective Performance Measures
Many jobs require tying pay to the subjective
ratings of supervisors. These ratings are often contaminated by a host of
factors including personal bias, halo, favoritism, central tendency, and
leniency. Every attempt should be made to base pay decisions on objective
criteria such as sales, attendance, complaints, quality, and productivity.
Weed out Ineffective Performers
Most organizations do a poor job of managing poor
performers. The presence of poor performers signals to the good performers that
how well they perform doesn't really matter. Those who are not performing their
job well should be coached, retrained, disciplined, or removed.