Employees Don’t Understand how Pay for Performance Works

Many problems occur because there’s a lack of communications. And lots of companies don’t really communicate very well especially on compensation kinds of systems. Employees don’t really know how their pay was determined. They don’t know anything about how pay for performance works, surveying the marketplace, how salary increases are determined, why my pay is this and some other person is that. It’s to your advantage to try to explain all these to your employees. Pay for performance is a good one. Assuming most of you want to be a pay for performance.

And you also probably want to say we pay competitively assuming that you are paying competitively. And every company can decide what their competitive policy. Some companies may choose a 50th percentiles competitive rate. Some companies may choose 60th, some company may below the 50th percentiles.

The question becomes how much to communicate about the compensation program. For example, every employee doesn’t need to see the entire salary structure and how every job in the company is graded. But every manager might need to know that. What the employee probably needs to know is generally what the company’s philosophy and compensation is. They probably need to know what the salary range.

Generally, the employees want to know what their potential is and where they are generally paid relative to their range. You also probably want to communicate to performance expectations. If there are incentive programs or stock programs you want to explain in very good detail about how these programs are work.

And last but not the least but as important if not more important than any of these is career progression. What is the potential for moving ahead? Where are they now? Where can they go? What are the skills and knowledge they need to gain in order to move ahead? And how can they go about getting those skills and knowledge?

Edited Remarks From “The 7 Deadly Sins Of Employee Compensation Plans (And How To Fix Them)” by Rick Olivieri

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