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How to Create a Successful Pay for Performance Strategy

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Erin Cushing
on September 02, 2016

More and more organizations are using pay for performance strategies as tools to help engage, motivate, and retain their high-performing employees. However, these programs are complex, and require careful planning and implementation as well as regular maintenance in order to be effective.

How do you ensure that your pay for performance program starts off on the right foot? Follow these steps when planning and creating your strategy:

1. Understand Your Organization’s Strategy and Goals
You’re building this program to support your organization’s goals, so you better understand what those goals are – and how the company plans to achieve them. Review your company’s mission, business goals and objectives, HR strategy, and overall compensation philosophy; all of these will influence the incentive-based compensation program.

Additionally, understand what the business’s key goals are, and map out how important they are. Figure out which goals are most important, which will create the most impact, and which are most realistic. Your program has to help your company achieve them, so make sure you don’t spend too much time on a less important or impactful goal.

2. Identify the Root Causes of Poor Employee Performance
Poor individual or team performance, lack of teamwork, and lack of employee engagement are all common culprits that sabotage business success, and can be rectified with the right pay for performance program. Make sure to ask yourself if these problems can be solved through just pay, or if there are other factors involved that you will need to consider.

3. Create a Set of Financial and Strategic Goals for Your Program 
Now that you know what you need to accomplish for the organization, set up the actual goals for your pay for performance program. Make sure these are clear, measurable goals that you can track and realistically achieve. Your goals should include a balance of both financial results and key business drivers.

4. Define and Communicate Clear Objectives for Employees
Next comes defining the layout of the program, and outlining what employees must actually do in order to qualify for pay increases.

First, set a range of financial and strategic performance levels with commensurate reward levels. Make sure you are going to provide payout opportunities that are consistent with the value of the performance and meaningful to employees. Then, outline how you will communicate the particulars of your program with employees, and test out that communication system. Nothing derails a pay for performance program like poor communication; employees need to understand what is expected of them in order to receive rewards, and if that conversation is bungled, you’ll be driving more high performers to the door than you’ll be retaining.

5. Communicate with Employees on Other Performance Aspects 
The communication doesn’t just stop with the pay for performance program; it should only be one component of your ongoing communications with employees. Provide ongoing feedback to all participants to keep them engaged; real-time and anytime, anywhere feedback are great tools to help keep communication proactive and engaging. Reinforce the pay for performance program with proactive communication with all participants.

Finally, be prepared to stay closely involved with managing your program. Pay for performance isn’t a set-it-and-forget-it strategy; it requires flexibility and vigilance to keep a program like this successful. If this is the first time you’re implementing a pay for performance strategy in your organization, it is a good idea to first run a pilot program in one specific business unit or department in order to get the hang of it and iron out some of the kinks before introducing it to the larger organization.


Want to learn more about better aligning compensation and performance into one strategy? Check out our tips for better alignment.


The right talent management technology makes all the difference when designing, implementing, and managing pay for performance programs. Learn why PeopleFluent is an award-winning solution for pay for performance; join our product demo on 09/08. Register here.

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