Step 6: Pay for Performance | Summary and Q&A

TL;DR

Pay for performance is a key element in building a compensation plan that aligns individual and organizational goals.

Key Insights

• 🌱 Pay for performance is a crucial aspect of building an effective compensation plan.
• 👻 Variable pay allows employees to see the link between their actions and organizational goals, motivating them to contribute to performance.
• 🌱 Merit pay programs reward employees based on past performance levels, while peacework incentive plans focus on future performance.
• 🏆 Spot awards provide on-the-spot recognition for specific behaviors or outcomes.
• 🌱 Profit sharing plans distribute company profits with employees, either as cash or deferred into retirement accounts.
• 🌱 Effective variable pay plans must align with strategic objectives, provide clear standards, sample the full performance domain, and be meaningful to employees.

Transcript

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Questions & Answers

Q: What is the difference between base pay and variable pay?

Base pay is the fixed compensation for specific job responsibilities, while variable pay is contingent on performance or results achieved. Variable pay allows employees to see the link between their actions and organizational goals.

Q: How does variable pay drive organizational performance?

Variable pay plans focus and clarify important tasks, establish goal alignment, motivate employees to make a difference, and provide positive reinforcement for desired behavior and results.

Q: What factors determine eligibility for variable pay?

Eligibility for variable pay depends on factors such as employee status (full or part-time), organizational level, position impact on organizational performance, performance ratings, and eligibility for other variable pay plans.

Q: How does the Merit pay program reward employees?

Merit pay programs reward employees based on achieving certain levels of performance over a predetermined time. Employees receive compensation adjustments based on their performance ratings, with higher performers receiving larger increases.

Summary & Key Takeaways

• Step six of building a compensation plan focuses on pay for performance, which involves using pay that varies based on individual or organizational performance.

• Base pay is the fixed compensation for job responsibilities, while variable pay is contingent on performance or results achieved.

• Variable pay plans drive organizational performance by clarifying important tasks, establishing goal alignment, motivating employees, and providing positive reinforcement.