Performance pay - does it motivate people to perform better?
12 June 2008 | Posted in Performance Pay
When it comes to performance pay, there’s one thing that’s certain - it generates a lot of debate across a range of issues including the fundamental question - does it actually motivate employees to perform better?
This was just one of the questions we discussed at last week’s E-Reward Conference when leading the performance pay workshop for two groups. There was some consensus that performance pay is not perfect, however for private sector participants it offered a more tangible way of rewarding those who contributed to business goals. This view also lines up with the CIPD Reward Management Survey 2008 findings where 87% of UK employers (the survey covers 2 million employees) reward performance.
One key challenge is deciding what performance gets measured and how to ensure that the behaviours used to achieve performance goals are appropriate. When used effectively, performance pay has the opportunity to reinforce culture and values, while making it clear what the performance expectations are. However, it can equally work against a company’s values when inconsistent decisions are made by senior managers, say where individuals perform at a similar level are treated differently. Performance pay was topic of a past issue of Just Rewards.
And over the past year, this is becoming a greater challenge for clients and HR people I talk to. Is this familiar? How do your line managers deal with this?
Let me know what you think…
Tags: Performance Pay
Lesley Pearson Says:
June 18th, 2008 at 3:22 pm
Performance pay has got bad press over the years particularly in the public sector which is obsessed with quantifiable targets from on high, where PRP means relatively small bonuses (compared to the private sector where base pay is also usually determined by performance) and where managers have much less control over pay generally.
Yet in my experience the vast majority of staff in the organisations I have worked in/with would agree that those who do a better job should receive more money/bigger bonuses. The nub of the matter appears to be how performance related pay is a) defined and b)managed.
Sylvia Doyle Says:
June 19th, 2008 at 1:27 pm
Yes, it’s so true that the practical management of performance pay becomes a major challenge when the ‘nuts and bolts’ of implementation are overlooked in performance pay design.
Soraya Says:
June 27th, 2008 at 10:23 pm
One of the challenges I have recently witnessed with regards to PRP is how credible can it be in time of success and growth not necessarily generated by strong employees’ performance as such but more by favourable market conditions and successful industry sectors.
Generally employees perceive that pay increases and bonuses are an entitlement because the company has always performed and it is really difficult to reinforce the PRP message as even managers tend to pay out full bonus to avoid what they perceive to be unnecessary and difficult conversations.
In this case we cannot really say that it motivates people to perform; it would be interesting to hear how very successful companies (partly for the reasons explained above) still manage to drive strong employee performance in very favourable conditions.