Performance Management

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Employee Compensation that Encourages Performance
By Kate Greene, SPHR
The strategy my neighborhood kids use to get customers for their lemonade stand is not unlike what many employers use to get employees. The kids scream “35 cents a glass” over and over, louder and louder. Would they have more success if they used signs, knocked on doors, yelled in a more even tone of voice, sold from a rolling wagon, etc.? Similarly, employers that advertise $8.00 an hour, over and over, may not get applicants or results they require. Better results come from compensation strategies that align company and employee performance goals. Establishing wages that will both attract employees and provide contain labor costs starts with careful evaluation of internal and external factors to establish fair pay ranges that reward performance. Recently a client asked how to best compensate his employees. The response, it depends. Compensation is a complex issue requiring careful consideration and research regarding many factors. The design of your company compensation structure can send a very strong message regarding what you expect from employees. Many authors have written on this subject and a lot of research and compensation theories/plans have been completed. When working with a small to mid-size employer to create a compensation plan, I recommend following a few central principles. These are: 1. Keep it Simple Pay structures needs to be easy to communicate and understand. Complicated formulas that weigh a large number of variables and have many inputs do not send a clear message – business goals get lost in the measurement and calculation. 2. Create a System for the Entire Organization Of course not everyone should be paid the same or have the same benefits, however a process needs to be established for all levels of the organizations. Too often compensation plans stop at executive levels of management or bend easily. Without a system for determining raises and bonuses at every...
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