Pay-for-Performance: A Nice Resource

Recently, I discovered a nicely written document on pay-for-performance systems.

It is reasonably comprehensive, without being too complex. It does NOT focus on the Internet and was not written for commercial purposes, but with reference to government employees. However, it has more general applicability.

The document, which I briefly review next, is a January 2006 report of the U.S. Merit Systems Protection Board to the President and Congress.

Here are some of what I consider the most interesting points raised in this document:

This document on pay for performance identifies organizational readiness as being an important factor in implementing pay for performance.

Some of the factors included here are organizational culture, which involves consideration of whether or not:

• Open, two-way communication is valued and pursued.
• Trust exists between employees and supervisors/managers.
• Human resources management (HRM) systems such as selection, training, and performance evaluation have clear and consistent objectives and support pay for performance.

Another readiness factor is trust, which involves consideration of whether or not:

• Training is provided to both supervisors and employees.
• Training covers both pay system philosophy and mechanics.

In determining the goals set for pay for performance system, the report indicates that “alignment of organizational goals and measures” is important.

External constraints on performance are also identified as potential problems in a pay for performance system. Although no detailed solutions to the problem are identified, the report notes that this should be taken into account in determining a pay for performance system.

There are many kinds of pay for performance systems, but the report focuses on only two of them – “one-time cash payments, and performance-based pay, which provides a permanent increase to base pay.”

While the report proceeds to explain the pros and cons of each of these approaches, I wish there was more information on other approaches.

Nonetheless, the pros and cons listed will be useful for companies who are choosing between these two options.

The report concludes with a nice summary of the features of a successful pay for performance environment, which includes such factors as organizational culture, fairness, and training on the pay for performance system.

This report is entitled: "http://www.mspb.gov/studies/rpt_03_06_pay_for_performance/index.htm">“Designing an Effective Pay for Performance Compensation System.”

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