In the face of compensation budget constraints, organizations must target limited funds to the things that have the greatest impact on employee performance and retention.
Pay for performance is widely used to help achieve this goal: in fact, by optimizing its pay for performance strategy, an organization can drive discretionary effort by as much as 11%, and intent to stay by as much as 26%.
Yet 8 in 10 organizations fail to realize this potential impact.
Better design and implementation of the pay for performance strategy is key. Leading organizations focus on four critical imperatives to increase the impact of pay for performance:
- Link Performance and Pay. Focus on a select few design elements that drive talent outcomes, including how employee performance is determined and the difference in payouts for various performers.
- Obtain Buy-In. Involve stakeholders, including senior executives and line managers, in pay for performance efforts early.
- Implement Pay for Performance. Continuously reinforce pay for performance by communicating the right messages to employees, embedding pay for performance in organizational culture, and enlisting managers as advocates.
- Effectively Incent Behaviors. Ensure that behavioral incentives are incorporated into pay for performance strategies to increase the sustainable impact on employee performance.