Pay is usually considered to be the base salary or wage for any given job. Some companies also use bonus payments and incentives to adjust the amount of remuneration. Performance reviews are often linked to pay increases and bonus payments.
But does this motivate employees to perform at their best?
And, if so—how should you measure and manage performance to get more out of your employees?
The key steps are:
- decide whether rewards will be financial or non-financial
- set fair goals and expectations
- put clear and transparent evaluation processes in place.
Financial or non-financial rewards?
For example, you are the manager of a small business with five employees. They all report to you and do an identical job. Then paying everyone the same base salary or wage may sound reasonable. If the roles fall under an Award, then this may be a requirement.
Using bonuses and equity to reward higher levels of performance in the team could be an option. Base salaries or wages are often linked to bonuses and incentive awards. So it is important to think about whether you have a fair foundation to apply bonuses.
Sometimes non-financial rewards are better motivators. Consider whether other non-monetary benefits will drive performance better than financial rewards.
But what if the roles do not fall under an Award? Then it is important to establish the scope of the role and WHAT you expect of each member of the team. Are the roles really identical?
You may need to define the job descriptions and evaluate the job level. This typically considers:
- level of complexity and autonomy of the role
- capabilities, education or qualifications each individual should bring to the role.
Set fair goals and expectations
First, set out the goals of each employee at various levels —WHAT you expect them to deliver. Once set, get market data to establish the pay range that other companies pay for similar roles.
Many companies use this to set a range of pay for each individual, based on their performance.
To set fair goals and expectations:
- The job level and goals for each individual reflect what you are expecting them to do
- The degree of difficulty of the goals should be similar for those at the same job level across the company
- Make sure employees know what is expected of them
- Define how you expect them to behave. These behaviours need to be consistent with the values of your company brand and communicated to everyone in advance.
- Set goals that have a timeframe appropriate for the business. Some companies use annual performance cycles. Others use more frequent or project-based cycles.
Clear and transparent evaluation processes
- Provide regular feedback. Skilled people managers assess the WHAT and HOW of performance. Take care to avoid subjectivity and unconscious biases. Discussing examples of performance with other people and managers in the company can help establish a fairer assessment.
- Decide how you will deal with changing circumstances – e.g. new hires, promotions, transfers, and long-term absences. Having this in place helps reassure employees that they will be treated fairly.
- Use a robust Performance Appraisal Process. Make the evaluation criteria transparent. This can be a numerical rating or a description of how to do each individual task. Make sure you can compare the performance of individuals at the same job level in the organisation.
Bonus or raise?
You have now set the job levels and performance of each individual. This lets you differentiate the base salary or wage fairly for individuals. If your budget allows, you could perhaps increase the pay of higher performers by more than those performing at a lower level.
Rather than a pay rise, some companies choose discretionary bonus payments to differentiate the overall level of pay. This can help where a company needs to make adjustments within a particular remuneration budget. Performance can also vary over time so it can be easier to keep base pay at the levels you would ideally like if individuals get a bonus.
Other types of employee rewards
Employees often think of base salary or wages in terms of fairness. They compare themselves to others at the same level, both in the market and in the organisation.
Pay is only one motivator of performance. Emphasis is now shifting to the concept of total rewards. And, more broadly, to the overall employee value proposition.
Other benefits may be more important to people working for you, such as:
- coaching and development opportunities
- opportunity to do challenging and interesting work
- alignment with the values of the company
- flexible working.
We love helping our clients establish accountability through Performance Management. We run training for business owners and managers on this topic.
If you need help thinking about how to drive performance in your organisation, give us a call at HR Gurus so we can help you make the right investment in your team.