Answer:
Implementing a pay-for-performance compensation model in your workplace can increase motivation and productivity amongst employees. In this model, they receive more pay when they meet or exceed performance goals set by managers or the company. Before establishing a pay-for-performance policy at work, you need to consider the benefits.
Pay for performance, also referred to as performance-related pay, refers to company programs that pay employees based on how they perform their job. Companies using pay-for-performance initiatives typically provide guidelines that explain what behaviors or performance evaluation results lead to increased pay. For example, to receive an additional payment, employees must make more sales or manufacture more products within a set timeframe.
Here are several of the key benefits of a well- designed pay for performance program
Establishes company values
When providing goals for employees to achieve, try to align them with your company’s overall objectives. By doing that, you give employees a better understanding of their role within the company and why it matters. Aligning these payments with company values also shows the positive behaviors you want employees to exhibit. When employees receive rewards for demonstrating those behaviors, it promotes the continued use of them and creates a more cohesive company culture.
Boosts motivation and morale
While the cause of motivation at work can vary from employee to employee, financial rewards can be an effective motivator. When employees realize that meeting certain performance expectations can result in higher pay, it can push them to work hard and develop their skills to meet those goals. Furthermore, these types of policies can also boost morale at work because it shows employees that you want to see them succeed and reward them for their hard work.
Increases productivity
Pay for performance aligns employees’ compensation with their contributions at work, so they will produce more to receive more pay. Often, you will outline goals that you want them to meet within a certain period, which may also improve efficiency as employees try to complete more tasks in less time. This additional productivity results in more earnings for both employees and the company itself.
Offers employees more control
Employees working within pay-for-performance models gain the power to increase their wages. These employees may decide to increase their productivity during certain times of the year, such as around the holidays, to gain some extra money. Having this control helps them feel like they have more power to improve their standing at work, rather than perceiving that the power solely belongs to supervisors. Though this model still relies on performance reviews, employees know they have a better chance of improving their evaluations by meeting specific targets.
Attracts and retains top talent
Having pay-for-performance compensation policies can help a company stay competitive when looking to hire candidates. Potential employees may be more likely to choose a company that offers monetary incentives, and thus potentially higher compensation, for their excellent performance at work. The top-performing employees add more value to your company, so it’s important to retain them. When they receive the benefits of this policy, it can persuade them to stay because they know the company recognizes and rewards their abilities.
Provides clarity on raises
In companies without pay-for-performance policies, employees sometimes have trouble understanding what leads to a raise. They may feel that managers base those decisions on intangible factors, such as their relationship. Tying compensation to performance reviews can add clarity and provide tangible reasons. As a manager, you should describe the goals or objectives they need to meet to obtain the raise. Then they understand the specific ways their performance contributes to whether they receive a raise.
Reduces the need for oversight
When you provide employees with the objectives they need to meet to receive performance-related pay, they have a much clearer idea of your expectations. As a result, they may require less supervision at work because they already know what they need to do to contribute to the goals you set forth. They may feel the need to take more initiative to achieve those goals, which again means you do not have to watch them as often to ensure they are doing their job.
Adds flexibility
By evaluating employees on the results they achieve, you can enable more flexibility in how they work. You do not need to focus on how many hours they worked or whether they used a specific method, and the employee also does not need to focus on these aspects. Ultimately, all that matters is whether they achieved the expected results. Employees can concentrate on performing their job in the way that best suits them, rather than trying to complete their tasks using a pre-determined “right” process.
