Developing an Employee Pay for Performance Plan that Works

The ability to manage and motivate an employee's performance can often be a complicated process. You need to develop an incentive plan that will properly reward individual results as well as achieve the overall goals for the company. Creating a plan that strikes this balance must take into consideration certain components in order to ensure its success.

The first component is to "control the controllable." In other words incentives are based on tasks that can be directly affected by an individual's efforts. If gaining more distribution by placing certain products in new accounts is your overall goal, a salesperson can be rewarded for each new placement they obtain. By defining objectives that can be reached through set actions, rewards can be based on achievable results. If an individuals efforts can not directly impact the results, there is no correlation between the objective and the reward.

Another component is to make the objectives challenging yet obtainable. If you set the bar too high you will discourage most people from even trying. There are always certain employees who will rise up to even the most difficult of tasks and overachieve. These top performers will always exceed expectations. Unfortunately these people are often few and far between. You must set realistic goals in order to get everyones best effort. A technique to accomplish this is to establish a minimum percentage payout. Once someone exceeds this level they are rewarded. For example, if someone obtains seventy percent of their goal they receive seventy percent of the reward. If your top performer achieves one hundred percent they would receive one hundred and ten percent of the reward. By doing this you keep everyone involved working toward the overall objectives of the company.

The final component to an effective plan is to consistently track, measure, and post results.If someone doesn't know where they stand in relation to potential earnings, they are less likely to keep pushing for more. By clearly defining their progress they understand what is needed to reach a higher payout. Another benefit of this is to create peer pressure amongst the team. Creating a competitive environment pushes everyone to overachieve.

For an incentive plan to be effective it must be clearly defined, achievable, and tracked and measured. The rewards must also equal the tasks. If set to low, even the best plan will fail to motivate the staff. If set too high, the results will not justify the overall cost to the company. The ability to navigate this fine line will often determine the success of your plan. Your ultimate result is motivated employees whose individual efforts drive the overall profitable growth of the company.