Performance and pay

- When's the last time you challenged yourself to learn something new simply because you felt like it, or the last time you had no choice but to learn something new to solve a problem at work? Would you have worked harder or achieved better results if there was a financial reward waiting for you? Years of research on pay, motivation, and goal-setting theory show that there are differing opinions about whether pay successfully influences high performance and better organizational outcomes. Interestingly, a Harvard Business Review article highlighted that research shows performance programs realize better outcomes for routine tasks, such as transaction processing. It also states they're less effective for non-routine tasks, like designing a marketing campaign, or other tasks that require creativity or the ability to learn something new. Over the years, some organizations have even moved away from using performance rating systems for measuring individual performance. This was done primarily because of the time required to go through an administrative process with little perceived upside. Instead, they repurposed the time to provide feedback supporting learning and growth, key areas of job satisfaction and organization competitiveness. In spite of the research, though, most companies continue to include pay for performance programs in their pay strategies. So let's look at ways that pay influences performance at the individual and organization levels. Pay is a powerful motivator, but this depends on three things, meaningful rewards, the ability to measure individuals objectively, and a sound performance management system. Effective performance management processes provide managers with the ability to differentiate high from average performers. This should translate to higher pay for those ranked higher. But without the three foundational elements, the plan can backfire. Pay is a talent attractor. In today's complex workplace, the skills needed to be successful are continuously evolving. Agility and adaptive learning are required, and more freedom with accountability exists than ever before. Securing reliable talent who can perform optimally under these conditions is critical. Pay as an accelerator of organizational performance. What gets measured gets done. Linking financial rewards to company objectives will affect employee behavior in both what they do and don't do. The connection between pay and performance, known as line of sight, must be clear to employees. Employees must understand how their actions will result in a payout. Otherwise, they'll become discouraged, and they'll focus elsewhere. Pay for performance plans are powerful tools. The key is to ensure the appropriate plan is in place for the right segments of the population. I've designed incentive plans from the bottom to the top of organizations, from the manufacturing floor to the C-suite. For example, line workers might find an incentive plan above their fixed hourly rate an attractive reason to switch employers. And senior-level executives typically expect to participate in enterprise incentive plans. For them, this is a critical part of the employee value proposition, and they'll scrutinize the upside potential when considering a job offer. Whether striving for individual or organization performance outcomes, review your incentive plan designs to ensure they have objective and measurable goals and there's line of sight for the participants. Customize your plans for the participating segments of your employee population, and make sure the payouts under those plans are meaningful to the participants.