4 Critical Mistakes to Avoid for Performance-Based Pay

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When implemented correctly, performance-based pay has the potential to be straightforward and effective. That doesn’t mean that it’s failproof, however. When organizations find that their performance-based pay plan fails to deliver on the results they’d anticipated, it’s usually due to one of the mistakes listed below. Browse through these common issues so you can avoid them in your own organization.

1. The “Peanut Butter” Approach

This error occurs when managers give the same ratings to their direct reports across the board. They may find it hard to measure their employees’ performance, so they fall into the trap of giving everyone an average rating. Unfortunately, when everyone gets the same performance rating regardless of their individual contributions, it fails to improve performance in any area. Top performers have no incentive to continue excelling, and lesser performers aren’t motivated to improve.

2. Inability for Employees to Influence Results

Seemingly flawless plans can still fall short if employees aren’t empowered to influence results. For instance, let’s return to the customer service example from the previous section: if the customer service rep’s goal was to increase the number of prospects they speak with in a given day, they wouldn’t have the power to change that result. To support credibility and a thorough understanding of the plan, employees must be able to have ownership over their performance outcomes.

3. Lack of Manager Commitment

Sometimes, the performance management process simply isn’t important enough to managers. Supervisors may claim that they don’t have the time to devote to a performance management system. Yet, their very role is to manage results and develop employees, so performance management should be a priority. To foster commitment among management, make sure the plan is simple enough to administer and that thorough training has been provided.

4. Uneven Application of Standards

Factors such as tenure and manager bias can prevent standards from being applied consistently. For performance-based pay to serve its purpose, standards must be applied in the same way for everyone who is doing similar work.

While these mistakes are easy to make, the good news is that avoiding them is just as simple. With a thoughtful approach, performance-based pay can be effective in driving the outcomes you want in your organization while rewarding employees fairly.

HRsoft is the trusted global leader in compensation management software whose COMPview solution is proven to control and simplify the full process and allocation of merit, bonus and equity awards to drive manager and employee engagement.