Hi,
I felt the article very true and interesting. It gives some useful tips to propotionate Pay with Performance.
Regards,
Soumya Shankar
HOW TO LINK PAY AND JOB PERFORMANCE
By Bruce L. Katcher, Ph.D. President of The Discovery Group
7 out of 10 employees say there is no relationship
between their job performance and their pay.
Part 1 - THE PROBLEM:
Employees want to feel that their good work is appreciated and
appropriately compensated. However, 7 out of 10 do not believe that
there is a clear relationship between their pay and their job
performance. Let's investigate this further.
Although technically impossible, most employees believe that their
performance is above average. Each, therefore, believes that he or
she should be paid above average. But this, of course, is impossible.
Most employees feel that they are not adequately paid compared to
those performing similar work in other organizations. They,
therefore, also believe that their pay is below the level of their
job performance.
Employees often perceive that there are poor performers in their
organization who are earning as much if not more than they earn. They
thus conclude, "If that lazy so-and-so is still here, they must be
under-paying me for my good work."
Supervisors don't have the know-how or guts to differentiate between
poor, average, and above average performers. They take the simple way
out and give everyone the same pay increases each year.
Our employee surveys consistently show that employees say that tying
pay to performance is very important to them. We have found this to
be particularly true in unionized organizations where the union has
negotiated contracts that require their employer to tie pay increases
to years of service rather than performance.
Part 2 - WHAT MANAGEMENT CAN DO
Successfully tying pay to job performance is possible but very
difficult to accomplish. Here are a few principles that can help. 1.
Make Your Pay-for-Performance Philosophy Clear to Employees
There are plenty of good reasons why you might NOT want to link pay
to performance. For example,
There are few major differences in how well employees perform their
jobs.
It is very difficult to measure differences in job performance.
There is not enough money available to make a big enough difference
in how average and above average performers are paid.
Linking pay and performance is inconsistent with management's
philosophy.
Employees, however, typically assume that above average performers
will receive higher pay increases than average performers.
Management, therefore, needs to be up-front with employees about
whether or not they intend to try to link pay to job performance.
2. Use Bonuses Rather than Pay Increases
Pay increases are much more expensive than bonuses because they
commit management to pay the increases every year. One-time bonuses
are a less expensive approach that can achieve the same motivational
impact.
3. Rate Supervisors on How Well they Rate their Subordinates
Supervisors often sabotage the organization's efforts to improve the
pay of good performers by giving everyone in their work group high
ratings. Management needs to train supervisors how to conduct their
performance ratings. They then need to analyze the ratings of
supervisors and base supervisors' pay, in part, on the quality of the
ratings they give to their workers.
4. Train Supervisors How to Talk About Pay
Many supervisors undermine their organization's pay for performance
efforts by saying things like,
"I wish we could pay you more, but all we can do is increase your
salary by 5 percent" instead of,
"I am delighted to tell you that due to your excellent performance
this past year, we are increasing your salary 5 percent."
Supervisors, therefore, need to be taught how to convey the
appropriate message that their good performance is being rewarded.
5. Use Objective Performance Measures
Many jobs require tying pay to the subjective ratings of supervisors.
These ratings are often contaminated by a host of factors including
personal bias, halo, favoritism, central tendency, and leniency.
Every attempt should be made to base pay decisions on objective
criteria such as sales, attendance, complaints, quality, and
productivity.
6. Weed out Ineffective Performers
Most organizations do a poor job of managing poor performers. The
presence of poor performers signals to the good performers that how
well they perform doesn't really matter. Those who are not performing
their job well should be coached, retrained, disciplined, or
removed.
In summary, employees typically want to be paid commensurate with the
quality of their job performance. Doing so requires a carefully
constructed pay program, a commitment from supervisors, and well-
orchestrated communications to employees about their pay.
From India, Bangalore
16I felt the article very true and interesting. It gives some useful tips to propotionate Pay with Performance.
Regards,
Soumya Shankar
HOW TO LINK PAY AND JOB PERFORMANCE
By Bruce L. Katcher, Ph.D. President of The Discovery Group
7 out of 10 employees say there is no relationship
between their job performance and their pay.
Part 1 - THE PROBLEM:
Employees want to feel that their good work is appreciated and
appropriately compensated. However, 7 out of 10 do not believe that
there is a clear relationship between their pay and their job
performance. Let's investigate this further.
Although technically impossible, most employees believe that their
performance is above average. Each, therefore, believes that he or
she should be paid above average. But this, of course, is impossible.
Most employees feel that they are not adequately paid compared to
those performing similar work in other organizations. They,
therefore, also believe that their pay is below the level of their
job performance.
Employees often perceive that there are poor performers in their
organization who are earning as much if not more than they earn. They
thus conclude, "If that lazy so-and-so is still here, they must be
under-paying me for my good work."
Supervisors don't have the know-how or guts to differentiate between
poor, average, and above average performers. They take the simple way
out and give everyone the same pay increases each year.
Our employee surveys consistently show that employees say that tying
pay to performance is very important to them. We have found this to
be particularly true in unionized organizations where the union has
negotiated contracts that require their employer to tie pay increases
to years of service rather than performance.
Part 2 - WHAT MANAGEMENT CAN DO
Successfully tying pay to job performance is possible but very
difficult to accomplish. Here are a few principles that can help. 1.
Make Your Pay-for-Performance Philosophy Clear to Employees
There are plenty of good reasons why you might NOT want to link pay
to performance. For example,
There are few major differences in how well employees perform their
jobs.
It is very difficult to measure differences in job performance.
There is not enough money available to make a big enough difference
in how average and above average performers are paid.
Linking pay and performance is inconsistent with management's
philosophy.
Employees, however, typically assume that above average performers
will receive higher pay increases than average performers.
Management, therefore, needs to be up-front with employees about
whether or not they intend to try to link pay to job performance.
2. Use Bonuses Rather than Pay Increases
Pay increases are much more expensive than bonuses because they
commit management to pay the increases every year. One-time bonuses
are a less expensive approach that can achieve the same motivational
impact.
3. Rate Supervisors on How Well they Rate their Subordinates
Supervisors often sabotage the organization's efforts to improve the
pay of good performers by giving everyone in their work group high
ratings. Management needs to train supervisors how to conduct their
performance ratings. They then need to analyze the ratings of
supervisors and base supervisors' pay, in part, on the quality of the
ratings they give to their workers.
4. Train Supervisors How to Talk About Pay
Many supervisors undermine their organization's pay for performance
efforts by saying things like,
"I wish we could pay you more, but all we can do is increase your
salary by 5 percent" instead of,
"I am delighted to tell you that due to your excellent performance
this past year, we are increasing your salary 5 percent."
Supervisors, therefore, need to be taught how to convey the
appropriate message that their good performance is being rewarded.
5. Use Objective Performance Measures
Many jobs require tying pay to the subjective ratings of supervisors.
These ratings are often contaminated by a host of factors including
personal bias, halo, favoritism, central tendency, and leniency.
Every attempt should be made to base pay decisions on objective
criteria such as sales, attendance, complaints, quality, and
productivity.
6. Weed out Ineffective Performers
Most organizations do a poor job of managing poor performers. The
presence of poor performers signals to the good performers that how
well they perform doesn't really matter. Those who are not performing
their job well should be coached, retrained, disciplined, or
removed.
In summary, employees typically want to be paid commensurate with the
quality of their job performance. Doing so requires a carefully
constructed pay program, a commitment from supervisors, and well-
orchestrated communications to employees about their pay.
From India, Bangalore
Hi ! All
To share with all you - the Performance and pay linkage in our organisation is as follows -
a) Performance ratings on a scale of A (Extremely High Performer) to E (Poor). Ratings are recommended by immediate dept. heads - this is ratified by senior managers, HR and the Unit Head - keeping in mind the overall budget availability. This leads to half yearly performance payments ranging from a maximum of 6 months basic to a minimum of 2 months basic.
b) For yearly salary revisions, factors like last 3 years performance rating, additional qualifications done and potential/market value are considered and appropriate differential revisions are done.
The main issues involved are -
a) how to get that fine balance of linking pay and job performance in a very OBJECTIVE manner, without showing any signs of bias.
b) Linking the Key result areas and Criitical Sucess factors of the Performance appraisal score for finalising the Performance pay or salary increases.
Right now a person who has completed all his KRA's in a timely and excellent manner need not necessarily be rated as "A" - since the concept of category wise quota and availability of budget comes into the picture, thus ensuring that - for example - out of a group of 10 staff eligible for a "A" rating, only 5 to 6 will eventually be given "A". This ofcourse leads to dissatisfaction.
c) Similarly since performance ratings are linked to future salary revisions, there is dissatisfaction when somebody is pushed into "B" or a "C" rating - as it means lower % of increase in salaries.
I would like some inputs on similar performance and pay linkages and how it is handled in other organisations.
Thanks
P.Arun Kumar
From India, Bangalore
To share with all you - the Performance and pay linkage in our organisation is as follows -
a) Performance ratings on a scale of A (Extremely High Performer) to E (Poor). Ratings are recommended by immediate dept. heads - this is ratified by senior managers, HR and the Unit Head - keeping in mind the overall budget availability. This leads to half yearly performance payments ranging from a maximum of 6 months basic to a minimum of 2 months basic.
b) For yearly salary revisions, factors like last 3 years performance rating, additional qualifications done and potential/market value are considered and appropriate differential revisions are done.
The main issues involved are -
a) how to get that fine balance of linking pay and job performance in a very OBJECTIVE manner, without showing any signs of bias.
b) Linking the Key result areas and Criitical Sucess factors of the Performance appraisal score for finalising the Performance pay or salary increases.
Right now a person who has completed all his KRA's in a timely and excellent manner need not necessarily be rated as "A" - since the concept of category wise quota and availability of budget comes into the picture, thus ensuring that - for example - out of a group of 10 staff eligible for a "A" rating, only 5 to 6 will eventually be given "A". This ofcourse leads to dissatisfaction.
c) Similarly since performance ratings are linked to future salary revisions, there is dissatisfaction when somebody is pushed into "B" or a "C" rating - as it means lower % of increase in salaries.
I would like some inputs on similar performance and pay linkages and how it is handled in other organisations.
Thanks
P.Arun Kumar
From India, Bangalore
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