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Question: Over the past couple of years, our management team has spent a lot of time talking about whether our pay system is as effective as it should be. We’ve had a number of employees leave the company because they felt their pay didn’t match up with their contributions. In some cases, we weren’t  disappointed an employee left. In other instances, we were losing very capable people. We didn’t like that, particularly when it happened a second time, third time, etc.We’re confused about why this is happening. We feel like we’re dong the right kinds of things. We have performance appraisals two times per year.
Our process asks employees to rate their own performance, in addition to being rated by their managers. We encourage our managers to talk about performance with their employees throughout the year, not just when it’s time to do performance reviews. Some of our employees still don’t like our pay system. Lately, we’ve been kicking around the concept of performance based pay. What do you think of it? If we move to performance-based pay,what steps should we take?

Answer: Performance-based pay is a method of compensating employees for the work outcomes that are produced. Compensation is based on demonstrable, measurable factors. It is a straightforward process that goes like this:

Performance is demonstrated.
Ratings of the performance are made.
Monetary and other rewards are

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About the Author

Daniel A. Schroeder, Ph.D. is president of Brookfield based Organization Development Consultants Inc. ( He can be reached at 262-827-1901 or Read More »

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