What is Pay for Performance?

Pay for Performance document

Many often ask what is pay for performance (P4P)? Well, the answer is there are many varieties of P4P in terms of compensation.

Further, P4P will depend on your company’s goals, budget, and compensation rationale. Yet, it is also based on productivity. For instance, in sales, account managers can see their salaries increase exponentially when they close deals and rake in commissions and bonuses.

Of course, it is crucial to design a P4P plan based on your company’s business goals and budget. So then, how does it work? Keep reading to learn more.

What does it take to implement pay-for-performance?

If you want to segment P4P into two categories, they would be these: Variable pay programs and merit pay increases. It is up to your company to decide which type aligns best with your objectives, or you can even use a variation of both.

Variable pay program

A variable pay program can be administered throughout the year, depending on the results achieved. For example, a sales manager may receive variable pay every quarter, if they meet their quotas. But, this can be used for any department who reaches their goals. And, payment can be made either in the form of bonuses or sales commissions. Another example might be the marketing department getting a percentage of sales commissions from a campaign they create and administer.

Merit pay increase

Merit pay increases differ from variable pay in the sense that they are given as part of an annual salary increase and are usually given to the top performers in the organization.

How can P4P benefit your organization?

For starters, pay-for-performance offers a lot of flexibility – especially if you have a mobile workforce. Not to mention, team members feel as if they have more control over their income and will become more productive in ways that align with the pay increases.

Plus, fair- and high-paying jobs tend to enjoy greater retention. Team members learn how to do what is necessary to increase their salaries, and it becomes a win-win for all.

Final thought

Pay-for-performance was designed to ensure that team members who meet organizational goals get rewarded. It is a fair and transparent compensation structure allowing both team members, and the company, to benefit.

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.