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12 Dec 2023

How to link pay, performance and recognition – and motivate workers

Performance related pay is a fair and transparent way to ensure employees remain aligned with business needs and understand what’s expected of them

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When someone applies for a job, the salary is generally advertised, as are the extras, perks, and bonuses. Ultimately, baseline salary is the minimum expected and anything else is an added extra, setting one employer apart from another.

Performance-related pay (PRP) is where employers link salary increases to personal performance, often measured against pre-agreed objectives. Sometimes the increase forms part of an annual pay rise and other times as a cash bonus.

Benefits of linking pay to performance

Money isn’t the only way to motivate employees, but it’s effective, especially during a cost-of-living crisis when every penny counts.

Businesses must meet targets to remain solvent and these targets form business objectives, which feed down to employees as personal targets. When managers share these with their teams, they’ll agree on how they can support them with KPIs to measure success.

It’s a fair and transparent way to ensure your employees remain aligned with business needs and understand what’s expected of them. When you link financial reward, whether pay increase or cash bonus, to the achievement of individual objectives, it motivates employees to meet personal goals.

Include inclusivity

A CIPD factsheet on performance-related pay, exploring the trends in different sectors, suggests that performance-related pay is less prevalent in the public sector, while many private sector businesses restrict it to upper management.

It’s not uncommon for people in higher positions of responsibility and accountability to get additional recompense, but it could be argued that this concept is becoming outdated. It’s also potentially damaging.

The performance of a business depends on the actions of its entire workforce, not just a few higher up the ladder. The quickest way to destroy employee morale is for them to see senior leaders being rewarded for results they helped make happen – especially if the success isn’t shared across the business.

It’s also essential to define performance parameters – whether they are to be measured by company or individual efforts. For example, the budget may be restricted if an employee meets their personal targets, but the organisation doesn’t.

There are two ways to tackle this, and openness and honesty are essential to both. The concept of ‘merit awards’ applies here, and your business can either:

  • Provide a pay rise based solely on individual performance.
  • Offer a company-wide or general pay rise and a further increase based on individual performance or merit.

Communication is essential in times of financial turbulence. Whichever of the two options your business can afford, you must apply it across the board, regardless of rank. As human beings, we have a strong and natural sense of fairness and become disgruntled if we perceive that a particular group is receiving privileges when others are going without.

How your company tackles performance-related pay speaks volumes about its values. In a world where diversity, equity, and inclusion are essential to business and people strategies, PRP is an opportunity to position yourself as an inclusive employer.

Inclusive employers have higher levels of employee engagement. Since disengaged engaged employees are productivity killers, it’s an essential driver of future performance and success.

Role of recognition

Recognition forms part of acknowledging performance, but, unlike PRP, you can think more creatively. Recognition goes beyond financial reward and can sit apart from or alongside objective or target-related rewards.

If you have a PRP scheme in place, you have the freedom to align your reward and recognition strategy to values and behaviours and drive peer-to-peer recognition.

Together, performance and behaviour rewards form an all-encompassing strategy, driving employees to meet their targets while modelling the behaviours that enhance your organisation’s culture and values.

In partnership with Pluxee UK

Pluxee UK, is a leading employee benefits and engagement partner that opens up a world of opportunities to help people enjoy more of what really matters in their lives.

Contact us today