Pay-for-Performance

GETTING STARTED

A pay-for-performance program will only succeed if it is compatible with the organization and its eligible workforce. To examine the feasibility of implementing pay-for-performance in your organization, it is useful to review the 3 components of expectancy theory:

• valence
• performance-reward connection
• performance-effort connection

Valence

Does the employee value the reward being offered?

Normally, the answer is yes – but not in all cases. Employees differ in how they value incentives compared with other needs on and off the job.

A pay-for-performance program will be most successful when the incentive is highly valent to employees. Valence should be determined by appropriate research.

Example: A consultant was retained by an organization when a team of employees were unable to meet production standards, even though there was an attractive cash incentive program.

The consultant discovered that the employees felt they were paid competitively but needed to leave work promptly at the end of their shift at 3 p.m. In this case, the employees did not value the extra incentive as it conflicted with their need to leave at the end of their normal shift.

The incentive plan was revised to allow the employees to leave before their normal shift ended when the daily standard was achieved. Once this was implemented, the daily production standard was consistently achieved.

It is important to know what will motivate your workforce. In this instance, time was a more important motivator than additional pay. Be aware of what is important to your employees through regular feedback and even surveys. Know what you should deliver in cash compensation but also other total reward programs such as benefits, perquisites, training and development, opportunities for cross training and promotions, and even flexibility in the workplace and hours of work. Well-designed and communicated programs incorporating employee feedback is invaluable for overall success.