Sometimes, pay and performance shouldn’t be linked
Should pay always be related to performance? Guest poster Edd Rennolls has some thoughts.
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The method for determining the right pay package to offer a new hire is one which can differ from company to company, position to position and even candidate to candidate. There is no universally set standard for dividing an employee’s pay between their base salary and the potential bonuses and rewards they can achieve for exemplary performance.
In today’s business world, it is not uncommon for many businesses to set a sliding scale in place for linking their workers’ pay to their measured performance. While this is frequently a great business strategy, it is not always the best.
Here are a few examples of how different compensation schedules could be beneficial to maximizing the productivity of your employees while limiting the financial risk to your organization:
When there’s a wide field of candidates
When attempting to fill a position with a plethora of equally-qualified, comparable applicants, separating performance from pay is an effective way for employers to bring new team members on without as great of an amount of risk as they would face by offering solely an equally comparable salary.
By offering bonuses or enhanced pay for reaching performance goals, top-notch employees will often be able to reach a fair salary figure for their time and effort, while those while fall behind on the productivity bell curve will not cost their employer nearly as much as their more effective co-workers. Job search engines are full of entry-level applicants who are often more than willing to pursue positions which emphasize performance more than their base pay.
Situations where performance is easily quantified
Another situation in which it may make sense for an employer to separate an employee’s base pay from the total amount allocated through bonuses and milestones is when the worker’s results are straight-forward and easily quantifiable – especially when fiscal in nature. The most direct and commonly seen example of this scenario is for employees working in sales.
The productivity levels of these team members are simple to measure – nearly without exception, those better at their jobs will produce higher sales figures while those less adept will report lower numbers. No organization wants to overpay a salesperson who is not bringing in any revenue, so separating performance and pay here makes sense for both the business and the worker (whose earnings are often directly correlated with their abilities and amount of effort put in).
When you’re looking for a specific candidate
Sometimes, however, separating performance and pay is not a smart move for corporate decision makers. One frequent instance of this is when a company has a specific candidate in mind for an available position, especially when that person is undoubtedly a leader in their field.
If a potential employee is in high-demand among your competitors, making your pay package more appealing is a great way to secure the desired superstar. It’s not uncommon for recruiters to offer more emphasis on base pay over performance bonuses when encouraging an employee to choose their firm over the applicant’s other options. This financial risk of this tactic is mitigated greatly when the potential employee has a well-documented and proven track record of producing quality results in the past.
A sliding compensation scale is commonplace is many businesses today, but it is not always the best choice in every situation. Although linking performance to pay reduces the fixed-cost financial risks of hiring new employees, it can sometimes limit your business from obtaining the best-of-the-best team members. Employee pay is dynamic topic which should be custom-designed for each position in your business depending on that job’s specific tasks and availability of qualified workers.
Edd Rennolls is a veteran HR recruiter who specializes in helping businesses structure and develop their recruitment strategies.
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