Module Seven: Successful Tips for Concept of Pay for Performance

Performance Appraisal Stock Photos and Images - 123RF

When doing annual reviews, it’s common to financially compensate for good reviews.  When dealing with money though, there are some issues to watch out for.  In this module, we will discuss some of the ways you can make financial compensation a positive change to your annual review process. 

No Surprises

When it comes to money, no one likes surprises.  When you are adding compensation to your annual reviews you need to insure that there are no surprises, otherwise problems will arise. You should make sure performance benchmarks are communicated in a clear and concise manner.  These benchmarks should be shared well in advance.  If you are able to, these benchmarks should be shared with your employees at their orientation.  It’s important that they know exactly how the process works, so they don’t end up feeling like they were hoaxed at the end. 

Focus on the Basics

When you start utilizing an annual review process, it’s easy to get caught up in the incentive part of the process, such as awarding bonuses.  As a reviewer, it’s important that you first understand the performance review process.  This means that you should understand the benchmarks, and exactly what is expected of the employee in order to receive the rewards.  If you don’t understand the benchmarks as a reviewer, how is the employee supposed to understand them?  Once you understand the process of an employee review, then you can move on to more complex items such as incentive bonuses, stock options, etc.

Show Clear Disparity

Have you ever been to a children’s competition where every participant was an equal winner?  Those events are great for not hurting the children’s feelings, but it doesn’t encourage them to strive for greatness.  In general, people have a natural inclination to strive to be the best, and that drive is an asset to your company.  If every employee is striving to be the best they can be, then your productivity will go through the roof!  Sometimes people need a little push, or incentive, to help them with that desire for greatness. When you are creating your performance appraisals, make sure to show clear disparity.  That means you are making sure the difference between what high-achievers and underachievers get is contrasting enough to encourage motivation to perform.

One for All and All for One

When setting up an incentive system with your employee reviews, you want to make sure that the system doesn’t discourage your employees.  The biggest drive for an annual review system is to drive up productivity and employee engagement.  Yes, you will want to make sure top performers are rewarded, but remember that there is no ‘I’ in team.  Part of the reward should be shared with the team, to keep morale high for the overall profitability of the company.  When the team has success, the team should be rewarded, not just the key player on that team.  You can address this issue by rewarding the team as a whole, and then rewarding the MVP (Most Valuable Player) employees in that team.  This will help your team feel like they are contributing to the company, which will help them feel recognized and engaged in their jobs.  You could also include the team as a whole to elect an MVP.  Having an MVP will push the other team members to work harder, so they can be the MVP next time.  In the end, it’s a win for the company and the employees!

Case Study

Ethan has just had his one year anniversary at the Snacker Cracker Company. He has worked really hard, and is excited to see what kind of a pay increase he will get.  His review seems to go pretty well, but he is unsure what the benchmarks are for the raises.  His boss said he is doing an excellent job, but never discusses his pay increase.  Ethan thinks that he will see a difference in his check, but a month passes and he sees no difference.  Ethan is upset and talks to his co-worker Javier.  Javier tells him that he had the same problem.  The company didn’t provide any training or materials on what the benchmarks or incentives are.  He ended up having to call human resources to get the answers he was needing. Ethan finds out that while he has done a good job this year, he has not met the benchmark for an hourly raise.