In Parts 1 & 2 of this series, we identified the following related to Performance-Based Pay:
- Objectives
- Pay elements
- Balance between fixed (base) pay & variable (incentive) pay
- Characteristics of Key Performance Indicators (KPIs)
In Part 3, we want to provide information about the essentials for a successful Performance-Based Pay Plan. Examples of these essentials include:
1. Ease of understanding by employees
- If employees do not understand the plan, they will not embrace it nor value it.
2. Proper “line of sight”
- Translated from “Compensation-ese” to English, this means employees see how their positions connect with the overall success of the organization—that is, employees know how their performance affects a particular performance metric/KPI
- The absence of “line of sight” can cause the plan to fail to properly motivate employees & thus be unsuccessful.
3. Effective communication & reinforcement of rewards
- Includes enabling employees to “know the score” on a regular basis
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4. Amount of potential reward is clearly known & the actual reward accurately reflects level of achievement for KPIs (or other performance metrics of the plan)
- This & 5. below (transparency & perceived fairness) go hand in hand
5. Transparency & perceived fairness
- This helps employees gain a high degree of trust that no games are being played with performance results.
6. Timeliness of issuance of rewards
- It should be as soon as possible following the determination of the final actual performance, including closing of the books.
HOW TRINITY CAN HELP?
Trinity’s Team has extensive experience in helping organizations to create highly effective compensation programs, including incentive compensation plans.
For more information:
- Email Trinity at info@TrintyHR.net
- Visit our website at www.TrinityHR.net
- Call us at 856.905.1762
You have HR opportunities…Trinity has paths forward!