Money. It’s the incentive behind every business decision, but it’s not necessarily what motivates employees. At least not exclusively. A pay-for-performance model weaves development into compensation.
How does a pay-for-performance model influence employee satisfaction and retention?
According to a Morning Consult survey commissioned by Paycom, employees said a solid work-life balance was more important to their happiness than incentives like a high salary, and quality benefits were ranked almost as high. Remember, compensation isn’t just about a check or bonus, but well-being, too.
When it comes to retaining top talent, the right compensation strategy is everything. That’s right; there are wrong ways to do it. Traditionally, businesses often resort to the “pay for pulse” strategy, in which everyone — based on zero criteria — gets a 2% annual raise. And with no performance-based evidence. It’s the easiest, most bare-minimum way to reward employees and make them feel less unhappy.
And therein lies the problem: Gone are the days when simply throwing money at an employee was an acceptable way to incentivize them. Today, employees operate on more complex psychological levels.
They want to know that their work matters and is acknowledged and fairly compensated. In this candidate-driven market, applicants take a closer look at the culture, vision and real-world impact of their potential employers. And with the widespread popularity of job review sites, it’s easier than ever for them to find a more rewarding employer.
Today’s employees don’t want a salary increase for simply showing up every day; they want their hard work recognized and rewarded. In other words, they want pay-for-performance compensation.
How does a pay-for-performance model balance engagement and performance?
Engagement and performance are two important qualities employers seek in new hires, but while they have direct ties to each other, they’re very different beasts:
- Engagement is how connected employees feel to their work.
- Performance is how well employees do their job.
Engagement is often difficult to precisely measure; instead, it’s gauged through surveys and other forms of feedback. Performance, however, can be quantified based on established metrics.
Let’s face it: Competition is fierce. If your compensation strategy isn’t in line with what motivates today’s employees, they could jump the fence for greener pastures. In fact, 12% of all employees — and 39% of dissatisfied workers — surveyed by Morning Consult are actively looking for a new job. If you want to make your grass greener than your competition’s, it’s time to re-examine how you reward and incentivize your workforce.
A pay-for-performance model puts emphasis on productivity and results. Simply put, it is the practice of recognizing and compensating employees for job excellence. It’s about rewarding the right qualities and shifting focus away from the wrong ones.
It’s also a powerful way to build a performance-based culture, one where bonuses and rewards aren’t just superficially granted, but earned. And with a willingness to adapt, a pay-for-performance model can scale with your organization and incentivize future workforce generations.
Let’s explore how pay for performance works and, more importantly, why it works.