Dollars and Sense: Pay systems must reward top performers

Published 12:00 am Tuesday, April 25, 2006

A critical measurement of any organization&8217;s talent management system is how well it does at retaining its top performers, it&8217;s A players. Many components make up the retention process, including one of the most important elements, the employee compensation and reward system.

Compensation systems should be structured to reward employees based on their contributions and value to the organization.

Unfortunately, many organizations do not have effective performance management processes that accurately differentiate employee performance. This in turn makes it much more difficult for organizations to properly reward it&8217;s A players at significantly higher levels than average or even poor performers.

Some organizations do not think they can afford to pay the higher compensation levels necessary to attract and retain A players. In fact, the opposite is true.

Organizations that are serious about raising their performance and productivity cannot afford not to offer the compensation opportunities necessary to fill all its key positions with A players. Often, organizations are already paying the compensation necessary to attract and retain A players but fail to recognize this.

A players expect to receive bigger pay increases and greater compensation than other employees. They will not stay with an organization that does not value their contributions and reward them accordingly.

Granting the traditional three to four percent annual pay increase to all employees without considering how each employee contributed to the success of the organization is a recipe for disaster.

This practice, which is amazingly still practiced in many organizations, does not encourage top performance and can actually create employee morale problems.

When considering how compensation systems should be structured, organizations must look at all elements of its reward system.

Competitive base pay is certainly important. Compensation policies should provide management with the flexibility to increase the base pay of

A players at higher levels and on a more frequent basis than &8220;average&8221; performers. Incentive and performance based compensation plans must be carefully structured to ensure that those that contribute more and create more value receive greater rewards and recognition