New Manager

Pay-for-performance: it’s fair, it works

Ritu Mehrotra | Updated on March 12, 2018 Published on February 18, 2014

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Not even can the C-suite types take salaries for granted as results matter most



The present generation strongly believes it is fair to be paid as per performance, but there is no justification for non-performance.

With an apparent drastic change in business and technology, the manner in which organisations manage their compensations has also metamorphosed.

No longer can an employee relax on his office chair with the certainty of getting handsomely paid without delivering results.

We live in a information- and technology-driven world. Therefore, paper performance management and merit systems are of reduced significance; only clearly evident efforts that contribute to the organisation’s growth can expect to be rewarded.

A competitive organisation in today’s scenario wisely recognises that comprehensive alignment of rewards with employee performance will lead to a stronger and more productive workforce.

The definition of performance differs with every individual; it is not just results but the quality of results and also the efforts behind them.

Organisations in India have been striving to align performance with pay for long in their attempt to make the employees, inclusive of the top management, more accountable for their contribution to the company’s growth, as the losses that misaligned compensations can create are beyond repair.

Corporate democracy

Indian companies have been linking performances to pay as a norm, wherein the salary packages have variable components or bonuses that are directly linked to the employees’ as well as company’s performances.

But the latest trend of pay-for-performance also includes CEOs, CFOs and all the higher members of the board.The need for corporate democracy was never greater, as public corporations today are like miniature governments having an overall effect on social, political and economic scenarios.

Trimmed salaries

There has to be fair play in the sense of compensation management, be it for higher or lower officials.

In the face of economic uncertainties, where salaries are being trimmed and employees laid off on the basis of non- performance, the higher authorities cannot expect their incentives to shoot up.

The way corporate governance operates at present needs a review, because if an organisation is not performing well and yet the higher officials are paid substantially, it needs to be corrected.

When decisions pertaining to company policies are taken, employees must be given a chance to voice their opinion, unless the matter is confidential. Justified measures while aligning the pay to performance — such as direct impact on the profits, team performance, client dealing, customer’s views on service quality, and success in developing talent — must be taken into consideration to rule out biases and favouritism.

A fair deal

Every practice has two sides to it — one that is advantageous and one that isn’t.

The advantages are aplenty. Pay-for-performance seems to be a fair deal since it has the power to motivate and encourage employees to perform their best.

It also gives a clear way to evaluate an employee’s performance and catalyses an organisation into a result-driven one. .

The reward motivation works well not only in sales or production departments but also in support roles such as Information Technology and Human Resources. It is a steer-clear policy where either you perform or are encouraged to leave.

Standards are set straight in organisations where employees’ performance plays a pivotal role in the results they receive. Employees are self motivated to reach his goal.

It is a sense of contentment for an employee that his/her performance has been evaluated on a standard of deliverables and not on the whimsical attitude of the team leader or supervisor.

This eliminates hierarchy by shifting an employee’s focus from impressing the higher officials to concentrating on his/her own performance.

Money is not all

However, for most employees, recognition of efforts and being applauded for the same are a bigger motivation than money.

Companies, apart from paying for their employees’ efforts, should also focus on actually acknowledging them.

An employee’s loyalty is essential for a company’s growth. Getting a salary hike or incentives for delivering a brilliant performance do count but, at the end of the day, a personal word of praise goes a longer way.

This is what the authorities include in practice. It is great at fostering a healthy and compatible scenario in the working environment.

Every organisation has a different pay-for-performance strategy depending on the nature of results it desires.

A compensation plan that motivates employees to excel results in happier and committed staff.

Talent pool

In the face of cut-throat competition and sudden waves of political uncertainties, companies must secure an exceptional talent pool while also safeguarding themselves from unseen future problems.

Therefore a balanced approach to pay-for-performance needs to be practised.

The writer is VP - Global HR and Talent Management, Bristlecone, a Mahindra company.

Published on February 18, 2014
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