What is Pay for Performance?

Pay for Performance is a compensation strategy that uses salary, bonuses, or other benefits to directly incentivize employee performance. Employee Performance is generally measured by pre-defined metrics or qualitative evaluations (performance appraisals).

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Pay for Performance Compensation Plans

Pay for Performance compensation plans are commonly employed in industries where the actions of the employee result in revenue by the company and the results of those actions are readily ascertainable. For example, individuals working in sales or business development commonly compensated based upon performance - as their performance leads to increased customers, clients, or sales revenue for the company. 

Pay for Performance compensation plans are very helpful for a company if it implements them effectively. It can meet the following objectives:

• Employ and retain the best quality workers
• Convey and reinforce the goals, values and motives of the company.
• Engage workers in the success of the company
• Benefit value creators

Moreover, the rewards policies instituted by a company as part of a pay for performance plan should assist employees in understanding:

• Company Vision: where the organization heads. e.g. foxfire
• Company Strategy: how is the business going to reach them
• Employee Expectations and Roles: what kind of role is assigned to each employee in the plan and what does the company expect from him/her.
• Employee Rewards: how employees get financial benefits and rewards from the expected achievements linked to their roles.