Some companies distribute rewards evenly to employees across the board while some choose to adjust compensation and bonuses based on individual performance. Many companies practice the former due in part to avoid the time-consuming and complicated process of performance reviews. In turn, this results in an unequal assessment of the actual contributions of employees, particularly the top performers who feel that their work is only valued just as much as the slacker on the next cubicle.

If a business is to maintain an edge over its competitors and establish a good relationship with clients, it must rely the participation of its best people. How it does so is not only reflected in compensation appraisals, but more importantly, rewards that suggest their value to the company.

Softscape, in its white paper, Guide to Retaining Your Top Talent: Linking Goals, Measurement, and Rewards to Drive Business Performance, offers the pay-for-performance approach as a way to align employee performance, appraisals, and rewards with the company’s business goals:

“The way people are rewarded in an organization directly affects the quality of their work, attitude, flexibility, and behavior towards learning new skills.
“Pay-for-performance is about building a culture of top performers by aligning goals, performance, and rewards across an entire organization. It plays a critical role in achieving workforce alignment, optimizing productivity, retaining and motivating the best employees, and driving organizational growth. Creating a performance-oriented culture means ensuring that compensation and incentives support desired actions and behaviors.”

Automation of performance appraisals and tracking employees’ contributions to the company in terms of allocation and accomplishments enables an enterprise to generate an objective measurement of their people’s value. This results in better computation of compensation and appraisals that do not alienate the best performers.

Softscape also offers a four-step way to implement the pay-for-performance approach:

  1. Plan Compensation.  Management must formulate a company-wide compensation plan, taking into consideration the competitiveness of its pay scales with the rest of the market. Moreover, a company should consider the many factors that comprise a compensation package, such as salary, bonuses, 401(k) contribution, and stock options.
  2. Align the Plan with the company’s business goals. In simplest terms, an employee’s compensation package should match that of the projected growth of the company.  At the start of the performance appraisal period, management should define the goals that employees must reach in order to receive a certain amount.
  3. Define incentives. While a company may not provide the top basic salary, it can still remain competitive in retaining employees by offering bonuses to performers according to its financial health. Once the goals are agreed upon, an incentive package that is commensurate to the goals of the employee and the company should be set.
  4. Measure performance. At the end of the appraisal period, management must count the score of individual employee performance. Normally, this is a point system where each employee receives points according to the level at which they met their goals.