Using Performance & Market Data to Guide Pay Decisions

pay for performance

Using Performance & Market Data to Guide Pay Decisions

Many organizations need to consider both internal and external pay factors when making pay decisions. For example, while market data should guide pay to some degree, factors like individual performance must also be weighed to ensure fair and equitable compensation. If you’re struggling to maintain a pay-for-performance philosophy while also basing pay decisions on market factors, compensation planning software can help. It allows you to pull data from a variety of sources to make informed yet effective choices for salary increases, merit awards, and more. You can also use the following approach to get started.

Use Salary Ranges First

The simplest way to blend internal and external factors is to start with the external first. This means looking at market data to help you form appropriate salary ranges for each position. Ideally, you should gather market data from three to four sources. Once you have ballpark figures, use internal factors including your organization’s pay philosophy and high-value positions to further guide your decisions.

Then, Focus on Performance

Pay-for-performance models are used by 77% of organizations, and for good reason: they can drive employee engagement by connecting achievements to tangible incentives. They also allow employees to understand how their contributions impact the success of the overall business.

After you’ve developed salary ranges, you can begin making pay decisions according to performance by breaking the ranges down into three distinct levels: minimum, midpoint, and maximum. Employees who maintain high performance should be compensated above market level (midpoint), while those meeting expectations could be paid just at the midpoint. The lowest tier should be reserved for employees who are still developing or failing to meet their goals. Keep in mind, however, that pay-for-performance decisions should always be based on sustained performance – not isolated incidents.

With this approach, you can pay competitively while staying within budget. Plus, you’ll encourage high performance at every level, incentivizing continuous improvement among both top performers and those needing improvement.

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.

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