Here at emPerform, we frequently hear from managers and business owners who are looking for a compensation model that can help them make the most of their human capital. Specifically, we’re approached by managers who are looking for ways to integrate performance evaluation platforms with payroll and compensation decisions, often in the form of incentive-based pay. If you’re tempted to adopt a pay scale structured around employee evaluation data, think carefully. When used well, pay for performance can serve as a great motivation tool and help not only the company but employees as well. When not done properly, pay for performance can become extremely aggravating for your employees and have a negative effect on your business. The problem is that there is a lot of mixed information out there, which can make it hard to tell truth from fiction when it comes to pay for performance compensation. In order to help clarify the issue, we have listed for you a few myths related to P4P and how they are untrue.
Myth #1. Pay for Performance alone will help drive productivity.
This is certainly not true. P4P operates on the premise that if employees are meeting or exceeding expectations then they will receive better compensation. While this may be the case, it also means that the burden of defining expectations falls on their supervisors. If expectations are clearly defined for one person and not another then that person will reap the benefit while the other person will miss out due to their ignorance.
Myth #2. Pay for Performance is a fair system by itself.
Since it looks purely at the numbers, P4P is an unbiased system. That being said, the entirety of an employee’s performance can’t necessarily be summed up in terms of numbers. Take for example, a salesperson who receives a thank you note from a customer, praising their service. Initiative isn’t as easily summed up as well. Any P4P system has to be balanced out with a system for rewarding these non-quantifiable factors.
Myth #3. Setting pay raises in my Pay for Performance system is incentive enough.
If you have a P4P system, be aware that your employees will only work as hard as they need to get their raise and if no other incentive is in place will lead to a decrease in performance. Make sure that you have systems in place to continue to motivate your employees to keep pushing.