Pay for Performance and Employee Motivation

Leaders and Managers want to make Human Resources fully accountable for the employee motivation. They tend to make anyone in the business accountable at the moment when the motivation of employees decreases and the profitability of the business is on a steady decline. In such a moment, the pay for performance can be seen as the right tool to engage employees and boost the productivity and performance again. However, there is always one person who makes a significant difference – the direct manager of the team. The monetary motivation works as an efficient short term motivator, but it does not last long. It does not buy hearts of employees; it buys only hands.

It is crucial to distinguish between roles of Human Resources and the line manager. HR designs and develops tools for managers to keep employees engaged and motivated. The line manager has to use tools provided by Human Resources to retain employees motivated. Managers always forget that the motivation of direct reports is a crucial part of the manager’s job profile. Moreover, they have more tools than just the salary and other reward components.

It is a common HR Issue. HR has to support managers, but it should not give them the incentive scheme that manages employees instead of managers. HR has to find the right balance between monetary motivation and development programs for managers.

Human Resources should advertize that the pay for performance concept does not cure all pains of the people management in the organization. The key player is the line manager. The pay for performance can help to ease the immediate depression. However, monetary motivation does not last long. Most employees get used to having a higher income in months or weeks. It just becomes a new standard. The organization has demotivated staff and higher cost base.

Pay for Performance
Pay for Performance

Managers like the pay for performance incentive scheme because they do not have to focus on a daily management and leadership of the team. Employees can easily translate the plan into right actions to earn more. Managers expect the incentive scheme to manage employees. Managers just make sure that the plan pays fair money.

However, the manager has to be able to lead the team without any additional money or resources. Most employees are happy with the base salary (if it is aligned with the common market practice), and they do value the recognition more than just an additional package. The recognition of the manager motivates and engages employees more.

On the other hand, HR should design the pay for performance scheme that recognizes top performers and allows employees to bring some extra cash home. However, it should not play a significant role and make employees depending on the incentive plan. The extra money should be a sweet carrot, not a necessity to pay bills.

The pay for performance incentive scheme has no significant impact on positive motivation of employees. They just understand the plan as another opportunity to earn more cash. They do not see the plan as an offer from the company. They see it as a tool. They just realize that targets are challenging, and many employees will not reach the threshold to receive a minimum payout. In such a case employees will be just demotivated.

Human Resources needs to develop skills of managers to engage teams. Engaged employee has a high performance and trusts the company. These employees find new creative ways how to make the business more profitable and how to beat the competition on the market. This should be a priority Number One for Human Resources in any organization.

Employee motivation is a crucial topic for Human Resources in every organization. HR needs to ask employees and managers about feelings and emotions in the company. It has to design action plans, design new tools and cancel procedures that do not work anymore.

HR has to compose the right mix of the pay for performance and the efficient recognition schemes. Most employees remember how they were recognized, they do not remember the annual bonus received last year. They just check it when they want to compare the latest bonus with the previous one. Sometimes, they can get upset.

Monetary motivation is a short term motivation. It can be long term, but it costs a lot because employees realize a difference between 100 dollars today or 150 dollars next year. They will choose the first option because they will benefit immediately.

The long-term incentive scheme is always about the significant proportion of the salary. The employee can double or triple the income if all conditions are met. The company has to fund the long-term incentive scheme from the day one, and costs of such a solution can be enormous.

The pay for performance can boost the productivity of employees – short term. The performance will decline within few months if there are no other changes following the introduction of the plan. Most employees cannot reach higher sales volumes because they just try as hard as possible. The plan can just demotivate them and in the end – they can stop trying to reach ambitious goals.

Each leadership team should not focus just on monetary motivation. Leaders have to push managers to use other tools to motivate and engage employees. Today, the business changes rapidly, and the company can stop its growth during just one quarter. In such a case, the leadership team struggles to find the best remuneration scheme for quarters of declining sales and profits. Honestly, the pay for performance incentive plan does not help in this situation. It can demotivate, and things just worsen.