10 Steps to Paying for Real Performance

by Aria Glasgow and Kristine Oliver

The term "pay for performance" is widely used to describe employee incentive programs, but is no guarantee that such plans will reinforce the goals most important to the company's long-term success or that payouts will be proportionate to participants' efforts and results.

This article discusses some of the critical factors in assessing the validity and effectiveness of performance-based pay programs, among them:

• The alignment of chosen performance metrics with key strategic priorities
• The balance between company vs. team/individual goals and relative vs. absolute targets
• An awareness of the real cost of potential incentive payouts at all levels of performance
• A clear understanding that awards must be earned anew each year by participants
• Regular updates to employees of their performance progress