CreatingPERFORMANCE-BASEDPay Structures

At peak levels, performance pushes athletes and businesses to the summits of success. At its lows, businesses slowly struggle to gain momentum and fall behind their competitors.

The success of your organization depends on the performance of your employees.

Links pay (base and/or variable), in whole or in part, to individual, group, and/or organizational performance.

The World at Work Handbook of Compensation, Benefits & Total Rewards by WorldatWork

Pay for performance (P4P)

Cost-efficiency: allocate dollars in a fair, transparent, and justifiable manner

Motivate employees: employees work harder when incentivized properly

Drive results: aligns employee performance with organizational goals

The principle: employees who perform better should get paid better

Why pay for performance?

As with any newly introduced system, the secret to P4P success is to lay the groundwork and make sure everyone’s going in the same direction (hopefully led from the front):

Gain executive buy-in

Align with organizational goals & culture

Get the right systems in place

Train managers properly

Communicate the plan clearly across the company

Ensuring P4P success

Employees won’t believe there is a link between pay and performance unless they can see it.Margaret O’Hanlon re:Think Consulting

Develop a clear compensation strategyDefine your market(s), determine your level of competitiveness, decide how to reward performance in base and variable pay

Use reliable market dataMake sure your strategy reflects reality

Develop clear and aligned goalsSet goals at the company or organizational level, department or team level, and at the individual level

P4P building blocks

93% conduct performance reviews

54% give performance-based pay increases

Incentive-based bonuses are the most common type of bonus

Information, Media & Telecoms are most likely to give incentive bonuses (71%)

2014 PayScale Compensation Best Practices Report

Common P4P practices

The compensation mix

Individualized rewards & recognition

Variable or incentive pay plan

Base pay plan

Company culture, compensation philosophy, compensation strategy

Make sure what you’re rewarding ultimately moves the business forward

Clarify who is eligible for the plan

Identify performance measurements

Determine threshold of organizational and/or individual success

Establish your pay-out strategy

Keep variable pay plans simple

Act now!

Elementary: Work with senior leaders to define compensation strategy, build a compensation plan with reliable data, define SMART goals for employees

Intermediate: Build cascading goals linking employee goals to corporate strategy, invest in hiring and training good managers, revisit your comp budgeting process

Advanced: Find new and creative ways to incorporate variable pay, develop strong performance management system, build great differentiation between low and high performers

Cornerstone OnDemand is a leader in cloud-based applications for talent management. Our solutions help organizations recruit, train, manage and connect their employees, empowering their people and increasing workforce productivity. To learn more visit csod.com/growth-edition.