The Link Between Compensation and Performance
Of all the issues we deal with in our employee surveys, there is probably no more emotionally-charged issue for employees that what they are paid for their contributions. In many employees' eyes, the pay they receive measures their worth in the most material way. It is difficult for any of us to avoid defining ourselves by the amount of income we receive.
Dissatisfaction in the area of Compensation - which is one of the 4Cs of our model of employee engagement - typically goes much deeper that the amount of money an employee gets paid. Instead, high performing employees are often bothered by the inequity of knowing that they make less than other who are no more qualified, of getting the same "across-the-board" raises as others who have contributed less to the organization than they have or of not having the opportunity to earn bonuses while others do. All told, these feelings can be devaluing and demotivating to employees.
Similar to policies of employee recognition, pay can be a powerful tool for reinforcing organizational values and for creating desirable changes in personal behavior or the work culture. To make the best use of this tool, though, organizations have to recognize that talented employees really are a source of competitive advantage and act accordingly.
Some of the ideas that successful organizations are implementing include:
However, U.S. organizations do not appear to be doing very well achieving these actions on the whole. Based on our annual Insightlink normative benchmark study, just 65% of U.S. employees agree that "You understand how your pay is determined" and only half agreed that "Senior management cares about paying employees competitive wages" or that "Your pay is directly related to your job performance." These results clearly show that there is real room for improvement in the use of pay as a motivational tool for employees. Equally important, once organizations implement new pay systems based on these simple principles, they should monitor the effectiveness of the new system to ensure fairness, efficiency, consistency and accuracy.
- Linking pay levels directly to the contribution an employee makes to the organization,
- Using variable pay to recognize outcomes that are aligned with business goals,
- Rewarding employees at a high enough level (which appears to be 10-12% higher than base pay) so as to motivate improved performance
- Making cash payments available for on-the-spot recognition, and
- Inviting employee input and feedback when designing new pay policies.