Archived Insight | July 17, 2018

Pay For Performance—How To Make Sure You Get Your Money's Worth

The idea that you pay people based on their performance may seem simple, but as organizations grow it requires smart thinking and constant effort to make sure this bedrock principal of efficiency doesn’t fall victim to bureaucratic sprawl. Our team can make sure everyone at your organization earns their keep.

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What is pay for performance?

A paycheck doesn’t always reflect a person’s performance. Factors ranging from the competitiveness of the job market to office politics can break the link between pay and performance, which in turn breeds a culture of entitlement where people expect a certain amount of pay regardless of the quality of work they perform.

Developing a fair, across-the-board system that binds pay with performance is easier said than done. Some key questions our team will help you answer include:

  • What is our desire for differentiated pay opportunities?
  • How do we strike a balance between enforcing the salary structure and allowing for individual differentiation?
  • How do we ensure our program is administered in a consistent manner across a company's different business units?

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A success story with pay for performance

Our experts have helped countless organizations link pay to performance in a way that improves efficiency and helps retain top talent. Here’s one example.

The issue

A commodities plastics manufacturer saw an opportunity to improve business performance by:

  • Focusing employees on the customer
  • Fostering teamwork
  • Providing employees “a piece of the action”

Our solution

Our team worked closely with site leadership to develop an employee incentive plan with the following:

  • Financial component (plant cost performance versus standard)
  • Customer-focused component (how well employees serve their customers' internal distribution centers)
  • Performance threshold which reinforces site quality and safety performance standards

Our experts included site management in the employee plan to align management and employees around site goals. Site management also maintained partial participation in the corporate plan.

The plan eliminated the individual piece rate component of pay. Piece rates had given some employees an opportunity to earn a substantial portion of pay through individual performance, but this pay component directly contradicted the site’s newly fostered teamwork philosophy. The new plan included a transition strategy that offered higher base pay, new incentive plan eligibility and buyouts where necessary.

Incentive changes were implemented via a strong communication/education campaign:

  • Introductory, all-employee meetings were followed up with meetings to allow time for employee work groups to identify how to impact plans
  • Six process improvement teams were established that continued work throughout the year
  • Discussions of plant performance were held regularly

The result

This performance-based initiative had a powerful impact on the manufacturer’s business. By the end of the first year, visible signs of progress were apparent:

  • Piece rates were successfully and painlessly eliminated from the site
  • Satisfaction of customer requirements improved significantly from 75 percent to 89 percent
  • Both site management and hourly employees demonstrated keen interest and rigor in measuring site performance

There was a dramatic increase in emphasis on quality and safety performance, with an unprecedented level of quality and safety training completed and threshold achievement every performance period.

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This page is for informational purposes only and does not constitute legal, tax or investment advice. You are encouraged to discuss the issues raised here with your legal, tax and other advisors before determining how the issues apply to your specific situations.