The basis for thinking of pay for performance in a different way should start with purpose. And, with many organizations focusing on defining their unique employee experience and how reward programs can impact it, the time to think about pay for performance in a different way is now. If organizations and compensation professionals have struggled with these programs for some time, what’s different now? With the COVID-19 pandemic of 2020 changing the nature of jobs and how work is being redefined as well as the need to attract and retain not only critical talent, but diverse employee groups, examining the traditional methods of pay process and governance seems not only appropriate but necessary. Research suggests that most employers also struggle to use incentive pay as a tool to reward performance in a highly differentiated way As Figure 1 shows, a Willis Towers Watson study found that only about one-third of organizations report that base pay programs are effective at paying for performance and most are either seeking to improve these programs or scrapping them altogether.įigure 2.
Setting aside the differences between 1975 and today’s salary budgets, the challenge of the pay-for-performance process living up to its name continues to plague us.
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More than 40 years later, organizations continue to struggle with how to make this process more effective. A graphic in the book showed the then-new concept of “salary increase guide charts” that used “a performance appraisal technique and salary range position” to inform a “personnel administrator where to position guidelines for the average increases.” Hence, the merit matrix was born. In 1975, “pay for performance” was introduced to the world of compensation professionals through the American Compensation Association’s (now WorldatWork’s) handbook for its first certification program. Whether an organization manufactured toilet paper, provided life-saving health care, distributed much needed food and other supplies, or researched and developed a game-changing vaccine, corporate purpose has never been as tested or highlighted as it was in 2020. The global pandemic could not have been a greater lesson in the importance of corporate purpose and the power of aligning it to individual purpose. Author’s note: This article, originally published in November 2019, is updated to reflect upon 2020.