Linking Performance Management to Compensation

Write results-oriented job descriptions

Many companies find it beneficial to rewrite their job descriptions to include more results-oriented and measurable information. Instead of simply including the specific tasks or duties of the job description, consider adding why the duty is performed, or which results it aims to achieve, and how the performance will be measured.

For example, for the marketing director role in an assisted living facility, the roles and responsibilities might look like this:

• Facilitate the move-in process to build relationships with new residents. Metric: New resident satisfaction.
• Ensure respite apartments are ready to show to ensure marketability. Metric: Apartment turnover.
• Develop and maintain a detailed marketing plan to great market share. Metric: Competitive market data.

The overarching goal of the compensation strategy is to ensure an organization has allocated the money necessary to motivate the performance needed to achieve the business strategy. To that end, compensation should also tie into the overall performance management strategy.

Practices must therefore be understood by employees and based on hard, objective data. It is essential to maintain an approach in which equal pay is given for equal work. These critical objectives can be achieved by:

• Standardizing pays practices and basing the compensation system on benchmarks
• Achieving internal parity
• Providing competitive hiring scales
• Reformatting or rewriting job descriptions
• Creating a meaningful performance management tool

The four types of direct compensation for employees you’ll see most often are:

• Hourly Pay/Wage: The most common and direct form of compensation. Typically used with unskilled, semi-skilled, and part-time positions.
• Salary: Customarily a yearly amount that is split evenly into pay periods so that workers receive the same amount every paycheck throughout the year. Positions that require more education or specific skills generally pay a salary.
• Commission: Commission-based compensation is designed to incentivize employees to produce at a high level and may be used in certain industries where the employer cannot guarantee a consistent workload.
• Bonuses: Bonuses give businesses a flexible option to reward employees additionally for great performance.

Steps

Build a Pay-for-Performance Compensation Strategy

By linking performance and compensation management efforts, employers not only provide clear compensation guidelines for themselves, but they can help employees understand their value and work to increase it.

HR professionals should lead these strategic planning efforts by first working with senior leadership to create these strategies (and subsequent tactics). Second, you’ll want to make sure these strategies are tied to applicable data because your people will want proofs. Data from your performance management efforts can help in this process.

Improve Pay Communication

But don’t run too fast. There is some aligning that needs to take place before you discuss your pay-for-performance strategies with your people.

According to the survey mentioned above, two-thirds of the employees who felt they were underpaid were at least paid at market value, and 35 percent were actually paid above market value.

Compensation is an exchange of value, and as we’ve already discussed, value is about perception. So, even if you come up with a perfect strategy to compensate your people according to their real value, it’ll be for nothing if they don’t understand it.