Pay-For-Performance (CONT’D FROM PAGE 28)
Board Converting NEWS INTERNET DIRECTORY
nues, with the result that customers get turned off,” said Lentini. “Or they might drop prices to make their revenue targets but end up losing money.” How can employers avoid those pitfalls? Later in this article we will provide an answer to this question. First, though, here are general guidelines from work- place experts: • Encourage Employee Buy-in. P4P initiatives will only work if employees are enthused about the possibilities. Encourage their investment in the program by involving them in the initial planning stages, working one-on-one to develop performance parameters that are appropriate, realistic, and inspiring. “Let subordinates suggest how they can achieve mea- surable results that will support larger departmental and company-wide objectives,” said Ding. • Think Outside The Box While most people think first of revenue goals, other categories can be equally important. How about produc- tivity levels? Cost reductions? Quality as measured by er- ror levels and customer feedback? • Create Achievable Goals “A rule of thumb is that employees should feel they have an 80 percent probability of achieving their assigned standards or objectives,” said Ding. “So, it's really important for managers to convince their people that the bar has been set correctly, that they have a high probability of success, and that supervisors will help them succeed.” • Set Meaningful Percentages The percentage of total pay accounted for by P4P programs will vary substantially. The trick is to offer com- pensation that is not so low that it fails to motivate perfor- mance, but not so high that it affects company profits. “The correct percentage is a function primarily of an individual job’s ability to influence a company’s key performance in- dicators (KPIs),” said Ding. The greater the potential of a certain position to control a KPI, the higher the incentive pay percentage. Salespeople very often enjoy the highest incentive pay. “It’s not unusual for bonuses in the sales department to come to 50 to 100 percent of base pay,” said Lentini. Percentages tend to run lower in other de- partments, typically varying from 5 percent to 30 percent. • Proceed Slowly. Gradually introducing a P4P program can keep em- ployees from reacting negatively. “When you rush a program, things get missed and peo- ple get upset,” said Lentini. To determine what works and what doesn’t in a particular work environment, companies are advised to begin with test programs that last a year or more and that reward performance with praise and per- sonnel file entries rather than money. “Periodically give employees reports show what they are making under the company’s old compensation pro-
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May 13, 2024
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