Performance Pay System – Contribution Pay – Part I

Choosing a Performance Pay System

There are a significant number of different Performance Pay Systems which can be introduced. Therefore, rather than painstakingly describing each of the systems and their merits or otherwise, it is perhaps easier to run through the major principles of any performance pay system and the choices available therein, making suitable choices to fit the culture etc of the company. We’ll start with the most common and straightforward:

Principle 1 Pay Increase or Actual Salary is Reward

Pay increase – this is a simple performance pay scheme where the better the employee performs, the higher the pay increase they receive. This takes no account of where colleagues currently are in the pay range and therefore salary anomalies will persist.

Actual salary – the most popular method of performance pay is to use actual salary and have different positions in these relating to a position in the pay range equivalent to their performance, where colleagues currently are in the pay range impacts progression. Anomalies are resolved as all colleagues performing at the same level in the same pay range are eventually paid the same salary.

Although some companies use salary increase as a reward in their performance pay schemes, by far, pay range reflects different levels of performance. Therefore progression through the pay range is based on performance, the greater the performance, the faster the progression. Employees achieving all of their objectives can, over time, expect to earn the mid point/ market pay rate for the job.

Give our Pay and Reward Consultants a call on 01506 828767 to discuss the support we can give you to enhance the performance of your organisation through the design of a performance management system to increase employee engagement levels and company profitability.