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How to implement performance related pay in 7 simple steps

The jury is out on performance related pay, however the fact remains that many businesses have been applying it successfully for years. Of course, some argue that it can create problems with people trying to ‘game’ the system and perhaps it could even be seen as one of the drivers for ‘tick box’ and demotivational appraisals. However, the reality is that most people consider generic or incremental pay rises as unfair and may be seen as creating an environment for mediocrity as opposed to performance. This is why many organisations are now following suit – so the key is knowing how to implement performance related pay positively. This paper discusses the steps for introducing performance related pay effectively into your business.

Focus on behaviours first

We know that the main driver of high performance is clear goals and regular, quality feedback (you can download our research review on this subject at www.actus.co.uk). This is why many businesses have been focusing on year-round performance management with an increased emphasis on regular check-in conversations. The risk here is that introducing a new performance management process where the focus is on pay leads to people becoming obsessed with ratings, often before they have developed the skills to fairly evaluate performance.

Instead, consider positioning the link between pay and performance as something that can be introduced in the future; after a strong culture of setting quality performance objectives with regular reviews and feedback has been established. Make sure that the message is about building a positive people and performance culture rather than simply aligning pay with performance. Developing the right culture takes time and managers will grow hugely from the experience of going through a couple of moderation ‘dry runs’ discussed in point 5.

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