There is no Holy Grail for Measuring Pay for Performance

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

The Appraisal Process is Integral to Pay for Performance

When you’re talking about pay for performance, compensation people can write formulas on pay for performance until the cows come home. Where we have a weakness is actually measuring performance. We almost always use some sort of performance appraisal form or/and a process, but there actually are no two that are alike.

That tells you that we’re not very good at doing this and no one has hit really on a holy grail for measuring pay for performance. The process itself is that the end result for performance appraisals is to get the absolute most that you possible can from the people that you manage. That’s ultimately what a manager should be responsible for. And to do that, they need to involve their employees and motivate them to the extent that they can get 100% from every employee.

In order to achieve that objective, they have to make a difference in performance, not everybody performs at the same level. And there’s a tendency to want to grade everybody the same.

It takes a tough manager to really make differences in performance. If you can get your managers to make these kinds of differences in performance, it will most likely translate into differences in pay and that’s what compensation systems, or pay for performance compensation system does. It makes differences in compensation between people based on differences in performance.

One way to see how well you are probably doing this is to look at your performance rating distribution. And lately it looks like a lot of companies have tried to get their performance rating distribution in line. But for a long period of time, in fact lots of companies even today have skewed distributions, skewed in the sense that they are probably over rating their people.

If you’re a little bit hard of a grader, you actually can make a difference between what the true exceptional people get and what the average people receive. The “meets and exceeds” get 3.5% and with a good distribution, the truly exceptional could get as much as 6%. A warning to you is watch your performance distribution and make sure it doesn’t get out of whack. Because once it does it’s hard to get back in line.

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