Keys to understanding the multiple definitions of pay for performance

To be the best means hiring the best. Without a strong pay-for-performance strategy, however, organizations may fall short of their goals. The question is, does your leadership truly understand the definition of a great pay-for-performance campaign?


Defining pay for performance in business terms

Pay for performance has always been a hot topic in the business world, with HR teams conducting employee-focused studies and using salary surveys to determine the best compensation plan for their companies. This is the standard among many organizations that hope to offer more to attract better candidates.

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But these methods just scratch the surface of pay for performance. There needs to be a clearly communicated link between compensation and the overall performance of employees for these plans to work.

In this article, we’ll dig deeper into the various ways a company can create a pay-for-performance program that counts.

Requirements for a successful pay-for-performance program

Pay for performance is not always about mere dollars and cents. It’s also about the general culture of a workplace that fosters employee engagement and productivity. For a company to enjoy a successful pay-for-performance program, it must meet certain requirements.

Those requirements often include the following:

  • A fair and effective management team
  • Strong funding sources for future projects
  • An excellent performance evaluation system
  • An ongoing system evaluation
  • Checks and balances to make sure all processes are followed as intended
  • Training for employees and supervisors

In addition, employees of the company must:

  • Value the recognition or compensation offered by the company
  • Understand what’s expected of them on the job
  • Believe they can achieve the level of performance expected of them
  • Believe the company will actually reward the accomplishment

Three best practices for rewarding employees


The three most common pay-for-performance methods that companies use today are bonuses, performance-based pay increases, and combinations (control points).

Employee bonuses. Bonuses are typically distributed only if the employee meets a predetermined goal and are not guaranteed. Bonuses are paid in addition to an employee’s regular wage.

Performance-based pay increases. Opposite of bonuses, performance-based pay increased are integrated into the wage of the employee and typically only adjusted upwards. Some companies have very formal systems in place while others allow managers a little more flexibility when the time comes.

Combination (control points). The most common form of pay for performance is the combination program, which uses both bonuses and performance-based pay increases to keep employees happy. Combination plans give employers flexibility and the ability to limit the downsides of bonuses and straight pay increases.

Remember that a pay-for-performance strategy is only as good as the company’s ability to communicate and manage it at the employee level. Make sure your team is on board and ready to move forward into a brighter future.


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