I’ve been around the block a time or two, and the concept of setting pay levels to reflect performance outcomes isn’t new. However, I’d argue that it’s a tried-and-true approach with many benefits when done well.
I see it like planting seeds in the field – you water them, nurture them, and watch them grow into something beautiful. Let’s apply that logic to pay and performance.
Let’s start with the obvious. In a pay-for-performance system, compensation is directly linked to job performance.
If one knows how to impact their pay through their performance at work, then motivation is born. It’s a tangible reason to strive for excellence and goal achievement. Motivation accelerates the effectiveness of work, acting like a fertilizer in the field to increase productivity and engagement.
To make pay for performance work, it's essential to ensure fairness aligns rewards with contributions made. Employees should have a clear understanding of how their performance is evaluated and how it impacts their compensation. Open, honest discussions are best, and transparency is key.
Fairness also means NOT paying for inadequate performance. Poor performers can be like weeds. If unattended, they can take over the field and lower the yield for everyone. Instead, hold direct conversations to explain why the employee is not being paid a higher amount. Help them understand their performance deficiencies, which will either drive them to higher performance or out the door to another company.
A pay for performance approach encourages ongoing self-improvement and professional development. It’s an opportunity to nurture your employees, providing opportunities for growth. It's not just about hitting goals for today; it's also about growing and achieving long-term success for the employee and the cooperative. Which leads me to my final thought of retention…
It’s a no-brainer to stay with a company that puts their money where their mouth is. Consistently reinforcing positive behavior, by rewarding performance, increases the likelihood of the behavior repeating itself. And with continual high performance, pay then aligns with those successes. Water, grow, repeat. It’s a good cycle to be in!
In the end, it's a win-win situation.
Similar to nurturing a thriving garden, paying for performance helps each unique plant evolve and contribute to a more vibrant whole, creating a bumper crop for all of us.