Pay for Performance Eligibility

by on June 17, 2009 · 0 Comment POSTED IN: HR Info Center

The higher in the system, the greater percentage of salary is pay for performance

Another, thing that you might consider in this whole pay for performance process is who generally is eligible for incentives. And not everyone is eligible.

Now, it’s come to the point where certain industries have the tendency to put more at-risk for employees that appear in the high-tech area. There are lots of employees; almost all exempt employees are eligible for pay for performance incentives in lots and lots of organizations. That may be different, though, for manufacturing organizations and certainly different for nonprofits or the government. They don’t have any incentives at all.

Another criteria is generally whether or not you are exempt or non exempt. And, the reason then is not that companies don’t want to pay incentives to nonexempt employees, it’s just that to calculate over time, which can be done, is a bit of a horrendous burden to do, to do it and accurately comply with all the laws and regulations that you have to comply with in the over time period. So, non-exempts many times, are excluded from participation in pay for performance incentive programs.

You’ll see that the total cash mix or the percent of pay for performance incentives that’s put at-risk again, express this percent of basic salaries actually varies a lot. Before I will show to you individual contributor jobs as you move up in the organization, you’ll find that the higher you go, generally, the more is put at risk for jobs until you get to the top people and they have the most at-risk.

But, at the same time, those who have the most influence over the goals that are established for any particular pay for performance plan should have the most at-risk. And, the market seems to recognize that.

Now, once you figure out what the total cash mix will be, what proportion of the total target cash is going to be paid in salary? And, what portion in incentives?

Now, you have some discretion here. There’s no law that says you have to follow exactly what the market suggests. That you have to have salaries that are essentially the same as what the market is paying and incentive targets that are essentially what the market would suggest.

You can vary that a little bit and some companies do. They decide, instead of targeting salaries at this level, we’re going to hold back a little bit on the salaries. We may even hold back to instead of the 50th percentile, go to the 45th percentile.

But, we’re going to provide more upside opportunities for our people. And we’re all going to put more at-risk instead of targeting. The market may suggest 20% is the right rate. We’re going to put 30% in variable compensation.

Now, there are some limits as to how far you can go and still attract the right type of people. People, who are attracted to very low salaries that are different than what the market would pay and very high commission, they have a different personality and mindset and probably skill set to do a particular job than if you paid higher salaries and lower incentives. You get what you pay for. Which is a truism in the compensation.

Edited Remarks from “Incentive Talk: How to Design an Incentive Plan that Works for – Not Against – Your Company’s Goal” by Rick Olivieri

Leave a Reply


Request a Free Demo

We'd love to show you how this industry-leading training system can help you develop your team. Please fill out this quick form or give us a call at 877-792-2172 to schedule your one-on-one demo with a Rapid Learning Specialist.