Preventing Peanut Butter Pay
Posted by Amy Wilson on April 28, 2009
There tends to be a significant gap between what organizations want to do and what they actually do where pay is concerned. Sure, most companies buy into the concept of differentiating pay according to performance measures. But, the reality is that many are stuck in the simultaneous performance and compensation cycle, in which performance decisions are made within the context of compensation.
The result is that performance ratings are often a function of what compensation seems fair – this means that performance is no longer driving pay and managers often resort to a peanut butter approach to save headaches on the back-end. This is particularly problematic when budgets are shrinking and organizations know they can only provide meaningful rewards to a small portion of even their good performers.
So, what do you do? How do you prevent paying via peanut butter?
I have talked to many companies that are in this rut and are trying to get out. Here are some of the leading strategies I have heard:
- Use calibration sessions (with target distributions) to create final performance ratings that stick and cannot be altered within compensation.
- Use technology to automatically enforce the guideline rules in distributing the compensation so that peanut butter stays in the intended glops.
- Embed intelligent metrics directly into the compensation process so that managers can make informed, confident, and holistic decisions.
- The most thought leading approach appears at first to be pay-for -performance backlash: completely separate the performance process from the compensation process. Make the performance process more about future looking development and not about how much money you’re getting. Many months later, make compensation decisions using performance data and calibration activities. This actually allows for further performance differentiation while also taking the entitlement factor out of the equation (I performed the duties of my job, therefore I should get a fat raise).