- Blog post
Individual Pay for Performance Links Employee Compensation to Objective Measures
With individual pay for performance, there’s less direct supervision required
There are advantages and disadvantages to each type of individual incentive program. They can actually help relate employee compensation to pay for performance. Much more so than maybe the group plans.
So, if you’re really a stickler for pay for performance, assuming you can measure individual performance again, you can attach pay to it. It also promotes equal distribution of employee compensation.
In a base salary program, if you think about the budgets that are being given today, again, 3.8% – 4%, somewhere in that neighborhood. How much difference can you really make between individual performance, given that size of budget? Generally, not very much.
With incentive programs, you can make a big difference depending on how much is targeted for each individual or each individual job. You can make a big difference in the take home pay of somebody by using these types of programs.
Surely, with individual pay for performance, there’s less direct supervision required. You’ve laid out the goals. They know what they have to do in very specific terms and generally in quantitative terms. And, your job is to lay those goals out. Yes, supervision is required, but maybe not as close as it is for other jobs.
The best performers like to be under individual incentive programs, not necessarily group plans. And, you can see why. The best people don’t necessarily want their fortunes to be placed in the hands of a group.
They feel confident in their own ability to perform better than average that they would like the opportunity to earn better than average pay. And they don’t necessarily want to be hindered by a group.
Individual pay for performance also helps in the closing and budgetary of controls. If you are able to quantify individual goals, you can tell exactly how much you are going to spend on employee compensation, given certain levels of performance.
And finally, it’s just compatible with the American individualistic culture. However, again, most people who aren’t eligible for incentive programs actually are eligible under group plans.
Edited Remarks from “Incentive Talk: How to Design an Incentive Plan that Works for – Not Against – Your Company’s Goal” by Rick Olivieri