Cindy Ventrice’s post discussing the results of the Meaningful Recognition survey reinforces other surveys showing that employee recognition is about far more than just compensation. But research also supports what many know from experience – compensation matters and it impacts employee attitudes and performance – both positively and negatively. In fact, the only time most HR representatives hear feedback from employees about compensation is when they complain (rightly or wrongly) that the compensation process is unfair or unevenly applied.
Elements of an effective pay for performance compensation strategy
To serve as an effective motivator and driver of your overall talent management strategy, a compensation plan should:
- Provide income that meets employees’ basic financial needs. This removes the worry factor and allows employees to focus on their performance and on other, less tangible benefits.
- Be linked to clearly established performance measures. For example, financial institution UW Credit Union found that integrating their performance management and pay-for-performance programs significantly improved employee engagement. Managers set individual performance goals based on organizational priorities and evaluated performance and based compensation decisions on clearly understood measures.
- Be fairly and consistently applied. Employees need to know that they are being fairly compensated and that a pay-for-performance strategy clearly differentiates between high and low performance. UW Credit Union chose an automated performance management and compensation solution that removed much of the guess work and error from complex compensation decisions. By having performance and compensation data, history, guidelines and structure readily available, managers were equipped to make objective decisions. The process and tools also enabled HR to perform analysis at various levels to ensure consistency and accuracy throughout the organization.
- Be transparent and clearly understood. Compensation decisions are by their nature easily misunderstood. HR can defuse some of this by helping employees understand how decisions are made based on individual performance and other factors such as budget, organizational performance, compensation structure and market influences. Equip managers with tools, talking points and training so they can help employees understand how their own performance impacts their compensation and what they need to do to achieve higher levels.
- Be integrated into an overall talent management plan. Besides performance and motivation, your compensation strategy impacts other talent management elements such as retention, recruitment and succession planning. Pay-for-performance plans significantly influence top performers in their decisions to join or leave organizations.
Compensation is an important component of a strategic talent management strategy that impacts employee performance, retention and motivation. So, while using the many great motivational ideas on this website, don’t forget to make sure that your compensation program does its part to make work meaningful for your employees.