In my last Insight, I explained what a pay-for-performance system is and some common mistakes employers make with such a system.
Pay-for-performance systems are getting a lot of hype these days, and because of this, many employers are driven to using this system when it might not necessarily be the best system for them.
It takes a lot of work to develop an effective pay-for-performance system. This is usually where companies come up short.
If you’re interested in developing a pay-for-performance system at your company, you really have to start moving your culture to a pay-for-performance system instead of a tenure system.
There’s a shift that has to take place. You need to re-educate your employees and supervisors, and make sure that you have all the tools and components in place before you move forward with the system.
What often happens, however, is companies move too quickly and don’t have all the pieces in place, which usually causes the system to fail. It won’t be a good transition if you move too quickly.
Ensuring that you have good supervisors in place that are fully trained and understand how to administer a pay-for-performance system will enable them to set effective goals and to hold employees accountable for those goals.
You will want to ensure your supervisors are working through the coaching process all year long, driving toward goals, and are able to effectively conduct meaningful performance evaluations.
Once you have all of the above-mentioned items in place, then the real work begins.
Next, you will want to make sure you have up-to-date job descriptions so you are able to identify where you want to be in your market.
For example, do you want to lag the market? Do you want to lead it?
Clear measures are essential to success.
You also need to determine if you actually have the money to fund a pay-for-performance system and if your system will be based on merit, incentive or both.
Managing the challenge to slow down, rather than speed up, is critical.
For example, many companies want to put pay-for-performance systems in place, but they don’t even have job descriptions or basic grading systems.
I recently helped a company that wanted to implement pay-for-performance. I tried to get them to slow down because initially they did not have components in place for a successful roll out of this type of process.
They had not effectively created the necessary foundation, tools and processes, not to mention training supervisors to be successful in:
- How to set expectations
- How to create SMART goals
- How to conduct an on-going performance process
I really wanted this company to work on setting goals and then driving employees toward those goals. And not just setting goals and forgetting about them, but actually making goal-setting an on-going process, which is yet another challenge companies face when implementing a pay-for-performance system.
Pay-for-performance systems can be very effective, as long as you slow down enough to make sure you have all the basic components in place before you take off driving down the pay-for-performance highway.