And where is payment based on? Mostly, on an internal comparison of responsibilities or a common set of job evaluation factors. Base pay should, however, .
reflect the values of the organization .
recognize the specific role of each individual (thus paying for the persons' talents not the job) .
retain market competitiveness .
relate to competencies .
Variable pay (compensation plans) in many organizations has become an entitlement.
Many organizations have some form of variable pay. An (incidental) bonus, equity-related investments or a lump sum check. These kind of variable pay systems have little to no effect on the motivation of employees. Even more important: it hardly can be used as a 'steering wheel' to direct your employees the right way. Finally, traditional compensation plans are zero Sum Games; for one person to win, another must lose. For someone to get above the average raise for the company, someone else must get below. There is no way the entire team can win. Variable pay, from PM point of view, .
creates opportunities to share in the results .
is tied to the economic factors of success .
is team or business unit oriented .
relates to results .
Annual performance appraisals and Walking by Wandering Around does not influence performance.
A third way to reward employees is by verbal, visible and non-verbal feedback. This means more then Management By Wandering Around. The annual performance appraisals are not specific and an impossible instrument for motivating employees and directing behaviors. Critical behaviors have to get reinforced immediately and directly. Productive initiatives have to be rewarded personally and sincerely. Management,.
establishes measures and goals .
provides data-based feedback .
and reinforces desired behaviors .
Edward W. Morse (Performance management magazine, vol. 6, nr. 2) summarizes the major problems with traditional compensation systems using behavioral science as comparison:.