Your pay for performance plan document needs to clearly define all areas

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

Document everything in a pay for performance plan

Your pay for performance plan documentation needs to balance detail, accuracy and comprehension.

Once you determine what the incentive plan is going to look like, who’s eligible, what the target incentives are, and how people get paid off of it, then by all means, put it in a document detailing your pay for performance plan and hand it to every person who’s eligible.

Everybody needs to understand exactly what’s expected of him or her and what the potential pay off could be to them in this pay for performance plan. If, you don’t have a document, your incentive link is going to be fairly weak. The incentive plan document should have these kinds of things. It’s probably going to be three, four maybe five pages depending on how complicated the plan may be.

Balance everything in your pay for performance plan documentation
And, again, see, what you want to do is balance between being detail, accuracy, insuring that people really do understand how they are going to get paid.

You should talk about your company compensation philosophy. You do pay base salaries. You do have benefit programs. This is one piece of it, how they can earn extra money.

What’s the effective date? You may have several different plans or one succeeding another plan. You may even want to say this plan terminates on a particular date.

Who’s eligible for the pay for performance plan? In very specific terms, what job titles are eligible? And, consequently, what people are eligible? And you don’t want to mince words here, you want to be very exact.

And, by the way, if, this document is a bit of an art form to write, you want every word to mean something. No extra words, but you may also want to put examples of how calculations will be made.

Pay for performance plan essentials like what the performance measures are and how calculations will be made off the performance measures in order to generate incentives are vital to this document.

Definitions in pay for performance plan documentation

In certain cases, I see half of a pay for performance plan document as definitions. They’ll define what base salary is and to defining what incentives. A lot of things, I don’t think, you necessarily have to define.

But, you may want to define, what constitutes a sale, for example. When is the sale made? When do you get credit for? Is it at – is at where a contract in signed. When an invoice is signed? When an invoice is sent? When money comes in the door? At what point in sales cycle, for example, is a sale being credited?

How things are going to be administered should be also on this list. And, they include things like this: what happens to new hires? Maybe you want to do some sort of guarantee or even draws — heaven forbid I’m not in favor of draws, especially, reconcilable draws, where you have to take money back from people. I’d rather give them the guarantee, if, it’s a lower amount than draws.

Clearly define how HR situations will be handled in relation to your pay for performance plan
But, you may want to determine, how new hires are going to be handled. How termination situations are going to be handled and this is critical. Remember, we talked about the legal implications for how terminations are handled. Generally, my experience tells me and I’ve been to Labor Commission cases and that sort of things, that you can do just about anything that you want in this plans including how are you going to handle termination situations.Including saying that you have to be here at the time incentives are paid to all individuals in order to be eligible or receive an incentive. You can do that. The trick is to make sure everybody understands what those rules are.

If, they don’t understand what the termination rule is, you could have problem. Also, administration you want to make sure you say, “We can change, revise or revoke this – or terminate this plan, anytime, we want to”.

In any interpretations of the plan that are going to be done by whoever that may be. In my opinion, the day-to-day kinds of questions that will come up and remember, I told you, anything that can happen, will happen.

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