Tying Employee Compensation to Performance - Agile Product Solutions
  • Tying Employee Compensation to Performance

If you are looking for a way to tie employee compensation to performance, then it is important that you have a quality performance management system in place. Without an employee tracking system, the process of determining pay increases becomes more difficult… resulting in the potential for unfair compensation decisions.

Why Performance Management Matters

Performance management helps each employee to take responsibility for their skill development, which means that they will be more proactive to make themselves more valuable to the company. With a good performance management system, employees can see the progress that is made from one year to the next. Then, when yearly compensation increases are distributed, there is a clear connection between their performance and the pay increase that they received.

Jay Schuster, a speaker at the WorldatWork Total Rewards conference, said: “organizations that pay for performance are more likely to attract those interested in performing.” Many companies are understanding the truth of this statement, because they are seeing that employees are more interested in joining the company and working to develop themselves when there is a possibility for pay increase based on their performance.

How to Tie Compensation to Performance

The only way to effectively tie an employee’s compensation to their performance is with a solid pay for performance system. The system helps to set the expectations for both employees and managers, making it an unbiased decision when it comes time for an annual pay raise. The system must have a good user interface so make it easy for employees to use on an ongoing basis, and it also much be an intuitive software to simplify the process.WorkPerformance

Set the expectation in the beginning, from the moment that the employee is hired. When the employee understands the potential for growth within the company, then the company will see a reduction turnover and an improvement in employee morale.

Why Tying Employee Compensation to Performance is Beneficial for Your Company

In order for your company to thrive, you want employees who are taking initiative to improve the products and services that the company has to offer to customers. Building good relationships with customers and clients creates a foundation for long-term business development and growth, and the only way this growth is possible is with a team of satisfied employees who are engaged in improving themselves and their performance.

But, employees don’t always take the initiative to improve themselves without  extra motivation, and that motivation can be created with a pay for performance system. It is a cycle that helps with job satisfaction: the employee takes the initiative to improve their performance and is rewarded for their improved skill set, which in turn motives to them to work harder for additional career growth and improvement.

Other factors can affect employee satisfaction as well, including work environment, management, and benefits. Even though these other factors are important, many times employees cite job satisfaction and career development as their top priority. They want to feel satisfied and fulfilled in the work that they are completing each day, and tying compensation to performance is one of the most effective ways to monetarily quantify their progress.