What do reward practitioners say are the key reasons are for not paying for performance in their organizations? A recent HRcom webinar provided a viable platform to gather information from a sample of global HR leaders as to why they believed their organizations had not been successful in paying for performance. The most mentioned reasons are sampled in Exhibit 1 of this article.

Earlier in the webinar participants indicated that pay was viewed in large part in their organizations as an ‘entitlement’ and that pay changes were more likely to be determined by non-performance factors than they were by measured differences in employee performance. The most common reasons reported are as follows:

• Manager inability or unwillingness to pay for performance
• Inadequate performance management process or goals to measure performance

A review of the rest of the reasons provided in our Exhibit 1 suggest that some measure of frustration exists, at least in this sample of HR professionals, around their organization’s willingness and ability to pay for performance.

One interesting supplemental finding was in answer to the question, “Does it take 1 month to learn if a person is a poor performer and 5 years to terminate them?” This question is one we have asked before to try to explore the consequences of not doing a good job of paying for performance or performance management. Surprisingly to us less than 20% of those providing answers agreed with this statement—meaning to us that the tide has turned and even though they may be struggling with pay for performance and performance management they are doing a better job of managing out sub-standard performers than we have seen in quite awhile.

On a darker note, however, was the answer to another question we asked HRcom webinar participants. That question was the ‘biggie’ in our minds—“Does everyone expect a raise every year?” and to this question more than half of the respondents said that employees do indeed expect a raise every year. The struggle with entitlement seems to be gaining momentum. For the organizations that are not able to address expectations of automatic base pay adjustments each year but still hope to pay for performance the tool of choice will be variable pay which is the premier pay for performance tool and is now used by 80% of organizations for employees below management levels.

Where this Leave Us

The result for the organizations providing data to the HRcom webinar is an interesting one summarized as follows:

• More than half are locked in an entitlement mentality where people expect a salary increase each year.
• A vast majority, however, are doing a good job of managing out sub-standard performing employees which is important to eventually breaking the lock entitlement has on staffing their organizations.
• Performance management inadequacies are blamed for the inability or unwillingness to really pay for performance so measurement is clearly a challenge.
• Managers not managing the performance process or unable or unwilling to really pay for performance places accountability on the accountability of management for making sure the top people are receiving earned rewards.

So we do understand the challenges ahead. While nobody argues against paying for performance a huge ‘knowing-doing gap’ exists and this gap is shown in the results from this HRcom survey associated with an HRcom webinar. The stage is certainly set for improvement and room for substantial improvement exists.

Relating This to Talent Management Challenges

The tide has turned—from seeking to be a ‘best place to work’ by liberalizing benefits and offering ergonomic chairs and sabbatical leaves to trying to engage talent by paying for performance, competency, and skill. Every survey of what people want to become engaged in making an organization a success focuses since 2003 upon the following:

• Pay us for the value we add and the capabilities we apply to the organization
• Provide us with competitive base pay that grows as we increase in value to the organization.
• Give us managers who recognize and reward our performance and set a positive example of recognizing top talent.
• Manage performance so we know where we stand and what we do makes us more valuable over time.

So change is in the offing and this HRcom webinar survey suggests that some businesses may have a long way to go but that the journey may be worth the effort. However the proof is in the pudding for organizations that successfully make the journey. Organizations that pay for performance consistently outperform those that don’t and employees, the best of them anyway, want to be paid for performance. If talent management does not include steps to distribute rewards based on performance it is unlikely that successful talent engagement will occur.


Exhibit 1
Most Mentioned Reasons Not to Pay for Performance
HRcom Webinar Survey Sample
• Non-profit status
• Subjective vs. objective rating
• Educating managers
• Pay at our company seems to more dictated by the job market than by performance.
• Managers don't differentiate enough
• Effectively measuring performance is difficult.
• Obtaining accurate performance information from managers
• Equity issues
• Too much of pay based on performance
• How to develop performance/ productivity measures for al positions
• Incongruence between what the employees thinks the value of their work is and what the manager feels the value of their work was.
• Manager's reluctance to differentiate performance when money is a factor
• Poor evaluations can not justify pay for performance
• Having confidence in your management that they are fairly evaluating their team. Example..... more value seems placed on technical abilities than management abilities
• May cause low morale to other employees who meet expectations and work hard
• Monitoring and actually measuring performance so it can be accurately rewarded
• We don't have an adequate way to measure the performance. Our pay is merit based on a stellar performer receives 4 percent and an average 2 percent. Not a big enough difference to really mean something
• Managers don't do employee reviews in a timely fashion and employees get frustrated and sometimes leave
• Managers don't do employee reviews in a timely fashion and employees get frustrated and sometimes leave
• Budget constraints
• The manager evaluation practices for evaluating performance
• The manager's are afraid to give one person more than the other
• It's hard to reward high performer given the limited salary increase budget
• Job descriptions and expectations not clearly defined
• The consistent practice amongst managers
• Payout is at the end of the year
• Culture shift - everyone gets an annual raise and a few get a mid-year "merit" increases even though HR calls the "annual raise" a merit increase, the rest of the org. calls it a COLA.
• Since our Company inception in 1979 we have not really paid for performance so would be substantial corporate cultural change.