Most businesses today say they pay for performance. It only makes sense in most situations to provide the most pay to those employees who do the most for the business. However, sometimes there exists a disconnect in the definition of performance at all levels of the organization. If the company doesn’t have a shared definition of performance, employees will believe that there are inequities and a lack of practicing the philosophy.
We’ve all seen research (here's some with great charts) that indicates that most people don’t have a very good grasp of their own performance. So if we don’t clearly define the performance we expect, it’s a good bet our employees will believe they aren’t being paid adequately for their performance. Another disagreement can come when employees believe that their effort rather than their results, equates to performance. You can have an employee who isn’t terribly efficient who always puts in extra hours so believes that they are your top performer; failing to understand that their neighbor actually generates more output in less time.
This also goes beyond personal conceptions of performance. When a company claims to pay for performance, does that mean individual, team, division, or company performance, or a combination thereof? In our current economic environment, many companies have had to freeze or in some cases cut pay. If we were only paying for individual performance that wouldn’t make much sense. When viewed in the broader context of company performance, it makes perfect sense. The company isn’t performing, therefore pay is negatively impacted.
An actual or perceived decrease in an individual’s pay isn’t ever a pleasant message to deliver, but it will make sense to our employees if that is how we’ve always defined performance. They might find it hard to swallow though if we never before defined performance as organization-wide and never shared with our employees when times were good. That is why it’s so important to develop a compensation philosophy that will work under various business conditions. It’s also imperative that we make sure that everyone in the business has a shared concept of performance defined by the results we expect. Clear and comprehensive communication has never been more important, and can go a long way toward helping employees navigate these difficult times.
Darcy Dees works as the Compensation Manager for Rock Bottom Restaurants, Inc., headquartered in Louisville, CO. She has been working in Compensation for over 5 years now and recently attained her Certified Compensation Professional (CCP) designation. She spends what little free time she has hiking and reading.
Image: Creative Commons photo "Handshake" by Andyrob