Pay-for-Performance without Learning Misses the Goal

By Coy, Charles | Workforce Management, February 16, 2009 | Go to article overview

Pay-for-Performance without Learning Misses the Goal


Coy, Charles, Workforce Management


In challenging economic times with ever-tightening competition for skilled labor, keeping employees happy has never been more important. Pay-for-performance (often called total compensation management) is a tool HR and talent professionals can wield in an effort to retain their best and brightest. When thoughtfully applied, pay-for-performance systems can systematically link compensation with employee goal achievement, providing very specific and clearly communicated incentives for employee behavior that are in line with broader organizational objectives. However, for organizations taking a one-track approach to pay-for-performance, there are pitfalls to rewarding immediate goal achievement (the carrot-and-stick approach), because it often comes at the expense of long-term employee development. The question then becomes, does pay-for-performance without learning miss the goal?

Total Compensation Management Arrives

Incentive-based compensation has long been used to motivate sales professionals. With the arrival of a new generation of technologies, the idea of a pay-for-performance model for an entire company seems like a plausible, concrete way to meet challenges around employee performance, retention and engagement - while also boosting business results across the board. In fact, by 2005, 75 percent of all U.S. companies had connected at least part of an employee's pay directly to performance measures.1

A pay-for-performance strategy is most successful within the context of an integrated learning and talent management solution, which, until recently, was not entirely possible. With linkages to performance data - including competency assessments, goal achievements, key performance indicators (KPIs) and succession plans - organizations can now realize the full promise of pay-for-performance and create a culture of meritocracy. The benefits of such an approach include:

* Shorter compensation cycles

* Simplified processes and reduced paperwork

* Increased visibility into rewards

* Enhanced employee performance

* Higher employee retention

Rewarding Only Certain Types of Behavior?

In theory, a total compensation management system will improve staff performance, job satisfaction and employee retention. The challenge with that common argument is that it fails to account for unforeseen behaviors that arise in a workforce that takes too many of its behavioral cues from compensation. For example, employees driven strictly by compensation-linked goal achievement often fail to see the "bigger picture" and often work only toward narrow goals. It cannot be expected of HR practitioners, business line leaders and compensation specialists to account for every possible activity - tangible or otherwise - that might be rewarded with pay.

Further, in a pure total compensation management environment, the non-high performers only get the so-called "stick" of low rewards - a punishment of sorts for their failure to meet their goals. …

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