Pay for Performance – it is what we all say we want (in good economic times – and assuming we think of ourselves as great performers) and it appears to be what companies, more and more often, want to provide.

The ‘Rock and the Hard Place’

Companies are feeling the pinch – suppliers are wanting more for all raw materials/inputs and customers are not willing to accept a price increase. Employers are starting to get concerned about possible employee turnover as the economy slowly improves. Employee engagement surveys are giving mixed messages – and being scrutinized more carefully. So – how do you reward employees in a way that will keep and motivate them?

I will do what you pay me to do.

When I look at resumes, I look for accomplishments. (Too many resumes are lists of responsibilities . . . . . yet employers want to know about your results.) People seem to accomplish (1) what they enjoy doing and (2) what they are being incented through variable pay to do.

Outcomes and Value

Pritchett, a consulting, training and development consulting company, put out a list of the 13 Ground Rules for Job Success in the Information Age a few years ago. Rule number eight is Add Value which is defined as making sure you contribute more than you cost.

And the studies say . . . . . .

• Employers are more optimistic about their business and the overall economy now than they were in 2009.
• Regardless of this cautious optimism, most companies plan to keep their salary programs flat for this year (2010).
• Retaining key employees and attracting quality workers are consistently ranked as top priorities for all organizations (and mentioned in compensation plans) for 2010.

There is no perfect answer

The surveys done at the end of 2009 and early 2010 all point to increasing use of variable pay (performance and/or spot bonuses).

• Make sure you balance organizational needs with individual or team performance bonuses; think about what organization-wide metrics need to be met before individual payments are made.
• Consider spot bonuses in addition to OR instead of set performance bonuses.
• There are only so many priorities that can be a focus. Determine the top three areas (at most) that need the most attention. Build individual, team or organization-wide incentives around them.

Performance management – this Blog entry started with the concept of Pay for Performance. That means ongoing performance conversations and monitoring of organizational goal achievement and individual performance. According to all of the experts, making this topic/activity a priority will help not only in goal achievement but also retention of your best.

Whenever we conduct a search – regardless of position level, function or industry – we ask each prospective candidate for their current salary information. In almost all cases, we get current salary and bonus/commission information. The result is that for each position, we have incredibly up-to-date, (hopefully) accurate and current market information. For each and every search, we actually speak to between 150 and 767 (our actually record!) people. This represents an amazing database – larger than many compensation study samples.

What are the trends?

We are not compensation consultants; we are simply people with large amounts of current and relevant compensation package data. In pooling our collective knowledge here AND in doing a literature search, we are seeing the following as trends in this market at this time:

Top performers continue to do well in this market

• Most companies are looking for an opportunity to pay their top performers who helped them get through 2009.
• Variable pay will be the focus for compensation budget planning. Studies show most companies are not increasing their base salary budgets in 2010.
• The days of giving everybody an increase (between 1% and 4%) are going away. This practice gave the wrong message to everyone – the poor to average performers and certainly the top performers.
• Organizations are gravitating toward compensation systems that promote goal achievement, organizational flexibility and variable pay (for performance).

Over the next few entries, we will go further into trends and the details behind them. We will also explore how compensation planning and the concern over employee engagement work together/interact.