Mo Money, Mo Problems - Pay for Performance is Tricky....

You know the drill on pay-for-performance (PFP).  You do your best to ingrain the PFP fundamentals into your culture, but here's the trick - to truly pay your best performers, you have to be tough on the folks who aren't cutting it.  Is your budgeted percentage for merit increases across your company/unit 3-4%? 

For most of us, 3-4% is the standard budgeted range.  And that's where the rub is.  To give your best performers 6-8% and make them feel like the special people they are, you have to take it away from a low performer.  Most of your managers aren't prepared to sit down with the lowest performing person in their groups and tell them they are getting a 1% raise - or no raise at all....

To them, it feels so....so.....Jack Welch!  (Note to file - I think the picture used to the right featuring B.I.G. is about to become my new logo for all compensation posts.  I think Ann Bares should adopt it as well...)

Suzanne Rumsey over at the Consultant's Corner at Knowledge Infusion wonders aloud if Pay-for-Performance isn't the wrong way to look at the opportunity:

"Lately, I've been working with several clients who are grappling with the concept of Pay for Contribution, rather than Pay for Performance. Much of this transformation in thinking is coming about as more and more organizations ask the questions, "What do we pay our employees for, really?" Pay for Performance tends to be a historical view, paying employees for what they have accomplished in the past. It is based on the premise that the employee, with his or her manager, has set SMART goals for the performance period, and has been evaluated against how well he or she achieved the goals identified.

Pay for Contribution, on the other hand, can be backwards or forwards looking, however, it is based more on the premise that the employee has contributed value to the organization is (sic) some form or other - whether by growing critical relationships, developing valuable intellectual property, implementing key infrastructure, etc. Often, Pay for Contribution is intended to reward more "intangibles" - elements that add value to the organization, but are difficult to quantify or establish objectives for up front."

Those are great thoughts.  The reality, in most of the companies that I've worked for and with, is that while the pay for performance model is institutionalized, the pay for contribution (or even potential) is more informal in nature. Like style, you know it when you see it, and the valuing process (how much do you compensate for that?) is more art than science as well.

For most progressive HR types, pay for contribution/potential falls under the term "equity increase". Special skills, innovation, etc. get valued on the top line after pay for performance is done, and you provide an additional increase for the noted contributions or innovation that make the person special to the org.

How special do those thoughts/contributions have to be?  Pretty special, because the pay for contribution/potential/innovation model that Suzanne talks about is UNBUDGETED in most companies. 

So, the contributions have to be special enough to warrant that call to action, and to make everyone feel like there's a retention risk if it doesn't get done. 

What percentage of your workforce falls into that category?  10%?  5%?