• Set meaningful percentages.
The percentage of total pay accounted for by P4P programs will vary substantially. The trick is to offer compensation not so low that it fails to motivate performance, but not so high that it affects company profits.
“The correct percentage is a function primarily of an individual job’s ability to influence a company’s key performance indicators (KPIs),” Ding says.
The greater the potential of a certain position to control a KPI, the higher the incentive pay percentage. Salespeople very often enjoy the highest incentive pay.
“It’s not unusual for bonuses in the sales department to come to 50 to 100 percent of base pay,” Lentini says.
Percentages tend to run lower in other departments, typically varying from 5 percent to 30 percent.
• Proceed slowly.
Gradually introducing a P4P program can keep employees from reacting negatively.
“When you rush a program, things get missed and people get upset,” Lentini says.
To determine what works and what doesn’t in a particular work environment, companies are advised to begin with test programs that last a year or more and that reward performance with praise and personnel file entries rather than money.
“Periodically give employees reports showing what they are making under the company’s old compensation program and what that would look like under the new one,” Lentini says. “This allows them to see what behaviors they will need to adjust.”
Communicate values
How can P4P arrangements reward high performers while discouraging the pursuit of performance goals at the expense of other business priorities? The solution is to hinge incentive pay on conformance to a company’s larger values.
Consider the example of the salesperson who becomes overly aggressive with customers in order to meet a revenue goal.
“Employers need to continually communicate that today’s sales methodology is to help people buy,” Lentini says. “The salesperson needs to listen to customers and solve their problems.”
Judging how well employees conform to company values can be more difficult than clocking measurable job tasks. Here’s where customer surveys can help.
At many companies, Ding says, feedback from third parties accounts for 10 percent of the total performance assessment for many job positions, with performance-based assessments making up the other 90 percent.
There are exceptions, she notes.
“Feedback surveys might account for 50 percent to 60 percent of the assessment at customer service jobs,” Dings says.
Third-party reports will not solve every problem.
“The challenge with customer metrics is that people only chime in when somebody does an exceptional job or a less-than-good job,” Rymsha says. “In the middle zone, people typically don’t have much of an opinion and tend to sit on the sidelines.”
An alternative to customer feedback – or perhaps an adjunct – is a so-called “values scorecard,” utilized by supervisors to assess how well an employee’s actions align with a company’s guiding principles. Depending on the job position, such values might include customer-centered decision-making, teamwork, communications skills, ethics, kindness, attendance, punctuality and safety.
“An employee’s eligibility for a performance-based bonus may hinge on how well they have met the employer’s larger cultural and ethical requirements,” Prinkey says.
Reward everyone
Assessing the job performance of the sales staff and others with measurable duties may be relatively straightforward. But how can P4P arrangements reward those in supporting roles such as receptionists, office managers, bookkeepers and accountants?
“Probably the hardest people in any business to include in an incentive pay program are the administrative professionals,” Moynihan says. “It’s really difficult to come up with scalable measurements for employees with multiple concurrent tasks who keep the train running for everyone else.”
Moynihan suggests trying to isolate little slices of such jobs that can improve efficiency, reduce costs or enhance customer service.
Does a receptionist answer the phone within two rings to decrease the client wait time? Has a bookkeeper reduced the cost of paper, ink and other office materials? Has a secretary taken the initiative to update digital calendars and make needed appointments?
If all else fails, the employer can pull the support staff into a higher-level bonus system based on overall profitability.
“A companywide pool can be established for those who are not in direct revenue-generating kind of roles,” Prinkey says. “Their eligibility for the awards can hinge on the results of their values scorecards.”
Well-designed P4P programs can attract top performers to a company and retain them with incentive bonuses linked to measurable goals that support a company’s overriding principles. But top management must be sold on the potential of such a program to drive company success.
“An incentive payment program has to start with the CEO being a true believer,” Ding says. “Otherwise, line managers will not take the program seriously.”
Related: How to manage the toxic employee
Phillip M. Perry is an award-winning journalist who is published widely in the fields of business management, workplace psychology and employment law.