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It’s all about Compensation…

Posted by Anadi Upadhyaya on July 31, 2011

Compensation is not the only reason for employee’s motivation but improper and random Compensation Policy is often the biggest reason for employee’s dissatisfaction.

When we ask someone, does your organization value the people who really contribute towards “Achieving Organization Goals”? ; Most often answer is “Yes, We do. We have Pay for Performance Compensation system in the place”.

A Pay for Performance Compensation System is a fashionable thing to have.  It is important to remember that, It’s not about having a system in place but how system is getting executed, it’s about adoption by the people (Is it really open for feedback ? ).

Nothing is perfect, but a compensation process should be a system for the people and by the people.  Parameters used as decision variables in implementing Pay-for-Performance (P4P) affect employees motivation and are therefore very important.

Three critical decision variables in this process include:

  • Individual Performance: It’s a key decision variable from which the whole “P4P” system is derived. Contributors will we rewarded and it really motivates the individual. While it’s great to have criteria specified, many times individual criteria can kill the “Team-Sprit”.  Human nature to perform better than others for better rewards can be a dangerous thing for team goals. Often it is the collective goal that is critical to the organization. It doesn’t mean we should not have individual criteria, but expanding its scope (read Team Performance) can help resolve the conflicts it creates
  • Team Performance:  Addition of “Team Performance” as a decision variable with “Individual Performance” is the best way to convey that “we need to deliver as a team”. Proper guidelines on team size, scope of work and qualifying criteria should be published to make this decision variable clear and avoid unnecessary debate.
  • Company Performance: If your organization is doing well, it can decide to share its happiness with its employees too. Most companies make sure to include a component of company performance into the mix.

Compensation (salary revision, bonus payout    etc) depends on budget, and the above three parameters should be factored into how the budget is allocated.  Using a combination of the above three factors, added to clear communication strategy will result in improved satisfaction.

The above three guidelines are “Context-Independent” Pay-for-Performance  factors but “Forced Parameters” cannot be ignored while talking about any compensation system; so let’s talk about these “Forced Parameters” and their influence on the P4P process in next post.

Stay Tuned…

One Response to “It’s all about Compensation…”

  1. Sri Subramanian said

    How true. Outstanding performers are the first to acknowledge that they stand on the shoulders of other good, great, and outstanding performers, without whom they cannot succeed. We know that peanut buttering demoralizes the top performer. We also know that great outcomes are not achievable by one person in vacuum.

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