Nonprofit Variable Pay

Rewards

A major assumption of the performance-motivation model is that the person must desire the reward being offered.

The assumption behind any variable pay plan is that the reward is important to the employee. Although there are few employees who would claim that money is unimportant, the degree to which money is important to people varies with their circumstances.

Before exploring pay as a reward and relating it to the performance standard, we should note that there are other rewards that can be offered and at times included in variable pay plans.

Flexible hours can be a significant reward to many people. Variable pay plans can provide time off the job, as well as more pay. To many employees, defining what needs to be accomplished and then providing flexible hours or even paid time off for early or on-time completion provides not only potential free time but a sense of freedom as well.

Rewards can also be offered by developing contests in which employees receive prizes ranging from merchandise to vacation trips. Of course, the prize must be something the recipient desires. Otherwise, there’s no incentive to perform better. An advantage to using prizes is that these rewards are set up outside the regular pay system and can be easily increased or decreased based on what the organization can afford. However, these incentives can be dysfunctional if the reward is for an outcome that is a minor or peripheral aspect of the job. The focus on the contest may remove attention from the basic purpose of the job. Also, taxation must be considered when using incentive awards.

Timing

Many of annual incentive plans are paid annually when earned. The earned reward should be paid as close as possible to the end of the performance period being measured. The timing of the performance periods and rewards may also be monthly, quarterly, semi-annually, or another combination. Be cautious of designing a plan with quarterly rewards that may put at risk the attainment of annual goals. The design of the plan should consider these risks.