Communication Challenges with a Pay for Performance System

by on June 19, 2009 · 0 Comment POSTED IN: HR Info Center

Most employees want to understand the pay for performance system

You may have noticed this, it’s probably – all human resources people, if they’ve been in the business a long time will notice that lots of problems they experience in the human resources area can actually be boiled down to communications. And let’s face it, you really can’t communicate too much, there’s no such thing when it comes to human resources programs. In compensation, everyone should know how their pay is determined. And there’s no reason why your employees wouldn’t want to know. And they also have to believe that the system is fair.

Compensation people say this all the time. It’s their mantra – pay for performance. And there aren’t too many organizations out there who say that they would not want a pay for performance system. There are believe it or not. Most of them, however, are working for the government, and will have step right systems that they say is a pay for performance system but it’s really a seniority system. As long as you’re there and meet the minimum qualifications of performance which is 95% to 99% that the employees do, you get automatically promoted to the next step. No matter how good you are in these systems though, you never will catch somebody who was hired in before you.

Most employees these days want to understand the concept of a pay for performance system. And believe it or not, most employees believe in the concept too. They think it’s the fair way to go. In fact, if you ask your employees, how many of them thought they were above average, you probably would get about 80% of the people or 85% of the people would say they’re above average performers.

Now, we know that’s not true. At least 50% of them are below average. But most of them, if you’re especially the exceptional – if you think you’re above average performer, then you like the pay for performance system because exceptional people will come out ahead on these kinds of arrangements.

So how much do you communicate on compensation? It’s a question that companies have gone round and around on for a long period of time. At one time, there might still be companies who actually communicate all salary ranges for all the jobs.

A lot of them pulled back from that. Most companies don’t go that far. So there are certain things that the employee should know in the compensation area and then there are certain additional things that their manager should know. The employees should know what the company philosophy is on compensation, that we have a pay for performance system that we do want to be competitive. It doesn’t have to be very long but it should be written down.

They need to know something about their salary range. And where they’re paid in that salary range, what the performance expectations are of them. What their performance rating is and why they received the performance rating that they did. If they’re eligible for incentive or stock programs, they should be – they should understand how each one of those programs work. Again, they’re incentive programs; you want them to understand what’s expected of them.

And finally, they should have some idea of where they can go in the organization. What jobs they can possibly move in to, what the skill requirements are for those jobs. And if you’re really good at it, try to help them figure out a way of getting those skills. If you can’t give it to them on the job, then try to ensure that they have a chance for training programs – outside training programs and that sort of thing.

Edited Remarks from “The Seven Deadly Sins of Employee Compensation Plans (and How to Fix Them)” by Rick Olivieri

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