In June two years ago, the Wall Street Journal published an article which indicated that, "About 83 percent of companies with some type of pay-for-performance program say the approach is only somewhat successful, or not working at all," ("Firms Report Lackluster Results from Pay-for-Performance Plans," June 15, 2004). Well, here we are two years later and a quick Google search of "Pay for Performance" demonstrates the variety of industries that are working on implementing pay for performance scenarios. Many industries seem to be represented, including: education, healthcare, and government. Seeing the wide range of types of organizations considering pay for performance provides insight into some of the complexities inherent in the process. For example, it can be very difficult to link an individual´s performance in certain fields to outcomes, complicating the pay for performance link.
However, in many cases, moving towards pay for performance seems inevitable. Organizations like Hudson www.hudson.com have said in "The Hudson Employment Report - Pay and Performance in America 2005 Compensation and Benefits Report" that;
"As companies struggle to find top talent and control costs, they will need to more closely align compensation strategies with clear performance metrics." Pg 9.
So, what are some of the essential elements that contribute to success/ In the Hudson Employment Report mentioned above, recommendations for key approaches include:
"1) Make sure the program is in line with the company´s overall goals and culture"
"2) Communicate expectations"
"3) Differentiate"
"4) Measurement is key"
http://www.hudson-index.com/node.asp?SID=5764
A report published in March of this year by Aberdeen Group, entitled "The Pay for Performance Benchmark Report - Moving from Pay for Performance to Performance for Profit" lists Top Strategic Actions to Address Pay for Performance Challenges on page 12. http://www.aberdeen.com/summary/report/benchmark/RA_PFP_DFLK_2857.asp
The common elements in the recommendations contained in both reports and, for that matter in other related writings are based upon well functioning, ongoing performance management practices that facilitate communication, accountability and visibility. The need to ensure employees understand how their individual goals support business strategy and are clear on performance expectations is critical.
As the theme for June will be linking rewards with performance, I would encourage you to participate in the following poll to indicate where your organization is currently in terms of using pay for performance? You can participate in the poll by clicking here:
