10 Nov Performance Compensation Models: Why Do They Work?
A few decades ago, a HR department’s main job in terms of handling employee pay was compensation calculation. There was a fixed base salary for a particular position and it generally depended on the demands made by the job on the time, effort and expertise of the candidate. Fast-forward to 2016 and this static, rather insensitive model of compensation is almost obsolete. As markets become more and more competitive, the concept of pay for performance or performance compensation has emerged as a suitable alternative.
Pay for Performance & Its Value: How do Pay for Performance models stimulate engagement and responsiveness?
Well a large part of the success can be attributed to positive reinforcement and the power of appreciation. When a company adopts a Pay for Performance paradigm, it devices a strategy where the total cash compensation of an employee is comprised of:
- The fixed base pay
- A varying component that depends on the ‘performance’ of the worker
The fixed pay respects the effort put in by the employee. But the variable component is the secret ingredient. This component’s value is determined by the goals that are hit by a worker and the importance of their contribution made towards the overall growth of the company.
Performance compensation models ‘reward’ a ‘good behavior’ and thus motivate average employees to give their best while saluting the workers who achieve significant milestones and display stellar productivity. To ensure that your Pay For Performance strategy is executed smoothly without glitches, a performance management software solution can prove to be extremely useful.