Good talent is always in demand. Many technical or specialty roles such as healthcare IT staffing receive offers from headhunters or a staffing agency all year round. As a consequence, most employers are in danger of losing some of their best performers every year. Engagement is a great way to attract and retain high-quality workers. It allows businesses to maintain any competitive advantages in talent, as well as generating better morale and productivity.
There are several areas with which employers can experiment to boost engagement. One of the most powerful and impactful is the compensation and benefits structures. Many are now experimenting with different structures, including a pay-for-performance model.
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Understanding a Pay-for-Performance Model
Businesses typically want to hire new talent, but they want the payroll costs to be as economical as possible. On the other hand, workers typically equate their compensation with how much the employer values them. Squarely in the middle of these two perspectives, there is significant room to experiment with alternative compensation models. This blog focuses on one such structure known as a pay-for-performance model. Read on to find out more about:
How the Model Works
As the name indicates, a pay-for-performance model focuses on rewarding performance. The compensation structure is also referred to as performance pay. The model works by assessing the performance of each worker in their designated role. This assessment should ideally include information from a worker’s performance appraisal. In conjunction, any additional proof of performance, such as a line manager’s recommendation, should also get due importance.
Among any pay-for-performance model’s key components, transparency is one of the most crucial ingredients for success. The right model empowers your workers by enabling them a clear path to boost their compensation for a period. From an employer’s perspective, this model raises productivity across the board with minimal financial or monetary input on their part. It rewards workers based on their actual performance. Therefore, it offers several obvious advantages. Some of these can include:
- Attracting high-performing talent.
- Motivate existing workers to amp up productivity.
- Encourage the retention of top-performing talent.
Additional Considerations for This Model
While the model looks great on paper, it may not be universally applicable. Using pay-for-performance in healthcare can be problematic morally and ethically, for example. The Hippocratic oath taken by healthcare workers specifically demands equal dedication and attention for all persons under their care. Therefore, the question of “performing above par” should not arise. All patients should be eligible for the same level of care.
Another area to focus on is sustainability. A performance-related compensation model may look great on paper, but unless businesses use the correct motivational triggers, they could just as easily see degraded performance instead of improved output. The solution is usually never as simple as restructuring compensation plans to reward performance. Employers will frequently need to leverage supporting motivational factors. These can include engagement, transparency, skill-building programs, and even inclusive goal setting.
Ways to Supplement Engagement and Performance
Offering greater compensation opportunities is a great motivator. But The money factor may not always be enough motivation for many types of workers, however. Instead, employers and managers need to consistently work on supplementary motivation. Luckily, this does not necessarily mean flying your team out to the Bahamas once a year. Many ways prove far more cost-effective and easier to implement.
Try to leverage visible and clear appreciation of a worker’s efforts. A simple “job well done” can often give workers the affirmation they need. It affirms that their contribution and efforts are visible, and they are not meaningless cogs in a larger machine. Managers would also do well to reinforce how a worker’s role fits into the overall business goal, and how their work is meaningful output. Employees, whether permanent or contract-to-hire, need this reaffirmation from time to time. Otherwise, a monotonous or high-pressure workplace will lower their motivation to the point of disengagement.
Like any model, pay-for-performance pros and cons play a big part in the model’s success. However, certain variable factors also impact its success. Many of these can be specific to your business or niche. Others may be larger in scale, such as an industry transformation or broader changes in customer behavior.
In business, the cookie-cutter approach rarely works right, and almost never, the very first time. You will most likely have to continuously tweak the model and assess outcomes before settling on something that works. And even then, you will still need to monitor engagement and performance to head off any potential problems. However, there is little doubt that any business has a lot to gain from a successfully implemented model.