Most organisations pay their employees a set salary per month, or an agreed-upon hourly rate.
While this type of setup works for many firms, it is not a one-fits-all solution.
For example, many salespeople are paid a commission, typically a percentage of the services or products they sell, in lieu or in addition to a salary.
The benefits of paying employees commission is that if the company doesn’t make money, the employers are not responsible for paying the salespeople.
The commission is a major incentive for the employees to work hard; no sales results in no paycheck.
Although a commission-based structure would not work for many industries outside of sales, there is an alternative structure of payment, performance-related pay, which may be considered.
A typical salary or hourly pay is determined by a fair market value for the specific occupation, and then usually adjusted annually, or when an employee gets promoted.
However, many managers complain that they feel their staff is not motivated enough to work as hard as they can, knowing that they will get paid regardless.
Performance compensation is determined by the individual’s performance; those that outperform their colleagues get paid more.
This type of compensation is based on certain predetermined benchmarks which employees must meet or exceed to get max wages.
Benefits of Performance-Related Pay
Increased Engagement & Performance
Performance compensation is probably the best way to incentivise your staff to engage more and perform better at their jobs.
When the comfort level of a set paycheck is removed from the equation, individuals realise that they have to hustle to meet benchmarks.
This is a great way to help underperforming employees improve in various areas, such as speed, accuracy, diligence, etc.
It is also helpful in encouraging promising staff members to excel even further.
Less Financial Commitment
When you offer your workers a salary, you are obligated to pay that amount regardless of how well your company performs monthly.
If you fail to make a profit, you still have to give out paychecks.
If your employees slack off, you do have the option of letting them go, but if you don’t, you have to compensate them.
However, with performance related pay, if your team doesn’t work hard to help your firm succeed, they don’t get paid; it’s that simple.
Performance compensation creates a common goal for your subordinates and yourself to make the business be a success.
Head of Training and Development
Originally published: 30 August, 2016
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