Get access to the exclusive HR Resources you need to succeed in 2018.
Sign up for free email newsletters and get more SHRM content delivered to your inbox.
Is your employee handbook keeping up with the changing world of work? With SHRM's Employee Handbook Builder get peace of mind that your handbook is up-to-date.
Build competencies, establish credibility and advance your career—while earning PDCs—at SHRM Seminars in 14 cities across the U.S. this fall.
Gain the skills you need to rise to the next level in your career. Jon us at SHRM's Leadership Development Forum, October 2-3 in Boston.
Programs ineffective when managers avoid confronting mediocre performers with low salary increases
Members may download one copy of our sample forms and templates for your personal use within your organization. Please note that all such forms and policies should be reviewed by your legal counsel for compliance with applicable law, and should be modified to suit your organization’s culture, industry, and practices. Neither members nor non-members may reproduce such samples in any other way (e.g., to republish in a book or use for a commercial purpose) without SHRM’s permission. To request permission for specific items, click on the “reuse permissions” button on the page where you find the item.
Sibson Consulting’s 2010 Real Pay-for-Performance Study, which examined success factors of pay-for-performance programs at U.S. employers, found a wide variation in organizations’ ability to establish and execute pay-for-performance programs effectively.
“Real pay for performance rewards top-performing staff differentially and can be extremely meaningful for an organization if done right,” said Jim Kochanski, senior vice president at Sibson. The effective application of pay-for-performance vehicles "produces a higher return on investment from compensation by rewarding top performers. This approach begins to eliminate the entitlement mentality," he notes.
Sibson's study is based on in-depth interviews with 27 companies and responses to a survey of 138 organizations. Employers that reported strong results from their pay-for-performance programs, a group Sibson calls the best-results organizations, represented the top 20 percent of those in the study and were said to have “real” pay for performance. These organizations:
• Provided higher increases to high performers.• Reduced "gaming" of the system by giving managers access to detailed rating and compensation data.• Taught managers that rating everyone a high performer means less money for the really top performers.
• Provided higher increases to high performers.
• Reduced "gaming" of the system by giving managers access to detailed rating and compensation data.
• Taught managers that rating everyone a high performer means less money for the really top performers.
Calibration and Multiple Metrics
In addition, organizations with best-results programs used calibration techniques and multiple metrics to ensure that only true high performers were rated highly. They tracked the effectiveness over time of pay-for-performance measures such as goal alignment and ratings calibration.
Effective performance pay program design and a good company culture are needed to support a strong pay for performance environment, the study concludes. At organizations with an effective performance pay program, leadership support is considered the leading contributor to such a culture. Organizations with ineffective pay for performance programs tend to blame limited compensation budgets as the cause. Kochanski pointed out that this is often an excuse by managers who want to avoid confronting mediocre performers with low salary increases.
----------------------------------------------------------------------------------A sign of ineffective pay for performance programs:managers who want to avoid confronting theirmediocre performers with low salary increases.----------------------------------------------------------------------------------
“Though they may also have limited compensation dollars due to budget constraints or market trends, best pay-for-performance organizations often carve out funds for extra rewards to high performers and tend to see fewer employees whose performance is rated as high,” added Myrna Hellerman, senior vice president at Sibson.
Broad-Based Pay-for-Performance VehiclesTypes of incentive pay respondents used to recognize and reward performance by employees
Base pay increases
Other long-term incentives
Other (includes key contributor awards, travel conference awards and special cash bonuses for multiple-role responsibilities)
Source: Sibson Consulting.
Stephen Milleris an online editor/manager for SHRM.
You have successfully saved this page as a bookmark.
Please confirm that you want to proceed with deleting bookmark.
You have successfully removed bookmark.
Please log in as a SHRM member before saving bookmarks.
Please sign in as a SHRM member before saving bookmarks.
Please purchase a SHRM membership before saving bookmarks.
An error has occurred
Recommended for you
Do you have what it takes to win the war for talent? Find out.
SHRM’s HR Vendor Directory contains over 10,000 companies