Momentum Continues to Build for Performance-Based Pay, Even as We Struggle to Measure Performance

Evidence of continued momentum toward performance-based pay streams in, from places expected and not-so-much so.

The #1 expected change in compensation plans cited by the 413 U.S. HR professionals surveyed by Deloitte Consulting for its recently released 14th annual Top Five Total Reward Priorities study was: "Increased emphasis on performance-based pay."

And from our nation's capital, we hear news of a 5-year pay pilot at the National Nuclear Security Administration, whereby the agency will depart from the traditional 15-grade government general schedule and move to a performance-based pay system which appears to feature broad bands (aargh).  It is hoped that the new pay approach will better enable the agency to compete for technical talent in a tight job market and motivate and reward those employees who perform well.

This is all good, I think.  I am a fan of paying for performance, if for no other reason than none of the alternatives strike me as good ones.  But I smile (or is it a grimace) at the irony that I see at play here.  As we drive ever more steadily - in all sectors of work, it appears - toward tying employee pay to their performance, we also increasingly wring our hands over our collective inability to do performance management very well.  As evidence of the latter circumstance, I offer up the results of the recent State of Performance Management Study conducted by WorldatWork and Sibson Consulting where only 5% of participating HR professionals gave their performance management programs a grade of "A".  There are also many who cry for the abolishment of performance appraisal - and their arguments have force and merit.

And so we find ourself with a bit of a dilemma.  Something I continue to reflect on, anyway.  Look for more thoughts on the issue here.

Comments

[Jill]

One of the biggest issues I see with pay for performance (which for the record I fully support) is that with the economy so bad, most companies can't affort do do it right. With a 3-4% merit budget, you really can't differentiate much, so you either would alienate your steady but not stellar performers (a key group) with less than what amounts to a COLA, or you vary the percentages slightly but your top performers don't really get all that much more.

[Ann Bares]

Jill:

I would concur with your observation - the fact that we've been holding at 3-4% merit budgets for so long really constrains our ability to do much differentiation with performance-based salary increases. I think this is one of the big drivers behind the growing popularity of variable or incentive pay - the acknowledgement that merit increases simply cannot carry the entire "pay for performance" burden on their own.

Thanks for visiting and sharing the comment!