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White Paper

Pay-for-Performance Model: Inspiring Your Best Employees to Be Happy, Productive and Profitable

Key Takeaways

  • Employees appreciate raises, but they need to be fair and justified to help boost retention.

  • Effective pay-for-performance models help engage top employees and inspire high, sustainable results.

  • Salary compression risks turnover by ostracizing established employees.

  • Learn how to train managers to have productive conversations with talent about bonuses, raises and promotions.

Money. It motivates every business decision. But as far as what motivates employees, money isn’t necessarily it. At least not exclusively.

What influences 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 a high salary, and quality benefits were ranked almost as high. Remember, compensation isn’t just about a check, 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. It’s the easiest, most bare-minimum way to make an employee feel less unhappy.

And therein lies the problem: Gone are the days when simply throwing money at an employee was an acceptable retention tactic. Today, employees operate on more complex psychological levels.

They want to know that their work matters and it’s 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 do it.

In other words, today’s employees don’t want a raise for simply showing up every day; they want their hard work recognized and rewarded.

What’s the relationship between 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 at 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 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.

Let’s explore how pay for performance works and, more importantly, why it works.

Chapter 1: Engagement and Performance Are Not the Same Thing

Meet William

On the surface, William is a model employee. Every day, he comes to work early and leaves late. He’s a go-getter who adheres to rules and dresses the part. He speaks up in meetings to let everyone know he’s present and paying attention. He organizes office fundraisers, co-worker baby showers and Boss’s Day gifts. You know the type; every company has one. However, his productivity is weak, and he seems to think his optics-conscious engagement makes up for his lack of performance.

Meet Jennifer

Jennifer follows the rules, too, but unlike William, she isn’t showy about it. She’s less concerned with appearances than she is with doing her job to the best of her abilities. She’s more of the quiet type, keeping to herself and letting her work do the talking. But is anybody listening? When management does take time to notice — if at all — they’re wowed by her work. Clearly, what she appears to lack in engagement, she more than makes up for in performance.

The Best of Both Worlds

When it comes time for annual reviews, raises or promotions, whom will management remember: William or Jennifer? That, of course, depends on which model is used to measure employee performance. If engagement is a company’s top priority, William may one day be CEO. But a model set up to exclusively reward engagement and not performance can be easily gamed. As William attempts to demonstrate, engagement is sometimes the illusion of performance.

In Jennifer’s case, performance is disguised by an apparent lack of engagement. But as any employer knows, it’s performance — not engagement — that boosts the bottom line. And Jennifer’s productivity and results are most definitely a financial boon to the company.

While both exhibit highly desirable qualities that employers look for, whom would you rather have on your team? And what are you willing to do to keep them? Thankfully, you don’t have to choose one person or quality over the other; the divide between William and Jennifer actually can be bridged. But how?

When you adopt the practice of recognizing and compensating employees for job performance, something amazing happens. Jennifer will see that she works for a company that rewards her hard work and quality results. As a result, engagement will follow. In William’s case, he’ll see that he can’t skate by on appearances alone. As a result, performance will be elevated. With pay for performance, a culture is established that both rewards performance and elevates engagement.

To learn more, download the Pay-for-Performance Model: Inspiring Your Best Employees to Be Happy, Productive and Profitable white paper.

Key Takeaways

  • Employees appreciate raises, but they need to be fair and justified to help boost retention.

  • Effective pay-for-performance models help engage top employees and inspire high, sustainable results.

  • Salary compression risks turnover by ostracizing established employees.

  • Learn how to train managers to have productive conversations with talent about bonuses, raises and promotions.