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Pay For Performance

The document discusses pay-for-performance (P4P) compensation practices. It defines P4P as linking pay to individual, group, or organizational performance. It then provides statistics showing that 54% of companies give performance-based pay increases and incentive bonuses are a common type of bonus. The document lists reasons for P4P including cost efficiency, motivating employees, and driving results. It provides tips for successful P4P programs such as gaining executive support, aligning with goals and culture, and clearly communicating the system. Finally, it discusses elements of an effective compensation mix like base pay plans, variable pay plans, and company culture.

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97 views15 pages

Pay For Performance

The document discusses pay-for-performance (P4P) compensation practices. It defines P4P as linking pay to individual, group, or organizational performance. It then provides statistics showing that 54% of companies give performance-based pay increases and incentive bonuses are a common type of bonus. The document lists reasons for P4P including cost efficiency, motivating employees, and driving results. It provides tips for successful P4P programs such as gaining executive support, aligning with goals and culture, and clearly communicating the system. Finally, it discusses elements of an effective compensation mix like base pay plans, variable pay plans, and company culture.

Uploaded by

PREJA PATEL
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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What is Pay-for-

Performance?
Links pay (base and/or variable),
in whole or in part, to
individual, group, and/or
organizational performance.

Pay-for- The World at Work Handbook

Performance of Compensation, Benefits & Total Rewards

(P4P)
P4P practices
54% gave performance-based pay
increases

Incentive-based bonuses were the


most common type of bonus
Information, Media and
Telecommunications were most likely
to give incentive bonuses (71%)

93% conduct performance reviews

Source: 2014 PayScale Compensation Best Practices Report


Why do Pay-for-
Performance?
Why Bother with P4P?
 Cost-Efficiency:
Allocate talent dollars in a fair, transparent, and strategic manner

 Motivate Employees:
Employees work harder when incentivized properly

 Drives Results:
Aligns employee performance to organizational goals

 The Principle of it:


Employees who perform better should get paid better
Main Avenues to Success

 Gain Executive buy-in


 Align with organizational goals & culture
 Get right systems in place
 Train managers properly
 Communicate clearly across the organization
Generations, Compensation, and
Performance
Linking
Performance to Pay
“Employees won’t believe there is a
link between pay and performance
unless they can see it.”

Margaret O’Hanlon
re: Think Consulting

13
The Compensation Mix
Individualized rewards &
recognition

Variable or incentive pay plan

Base pay plan

Company culture,
compensation philosophy, and
compensation strategy
Strategy
 Develop clear compensation strategy:
Define your market(s), determine your level of
competitiveness, decide to reward performance in base
and variable pay
 Get reliable market data
 Develop clear and aligned goals:
Company or organizational level, department or team
level, individual level
Variable Pay
Ensure sound plan design
• PRE-DESIGN
• DESIGN
– Connection to performance and standing
– Eligibility
– Division of org to individual performance measures
– Mix of base to variable
• IMPLEMENTATION
– When and how is the incentive calculated / paid out
– Responsibility and administration
Base Pay

Merit Matrix
Base pay increases determined by performance and
position in market-based range
Typical Increase

Source: Institute for Corporate Productivity


Immediate Actions
Elementary
• Work with senior leaders to define compensation strategy
• Build a compensation plan with reliable data
• Define SMART goals for employees

Intermediate
• Build cascading goals linking employee goals to corporate strategy
• Invest in hiring and training good managers
• Re-visit your comp budgeting process – P4P vs COLA

Advanced
• Find new and creative ways to incorporate variable pay
• Develop strong performance management system
• Build great differentiation between low and high performers

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