Most of the studies carried out are unanimous in confirming that compensation remains the number one motivation for employees. This basic need is the first step in Maslow’s hierarchy of needs, which shows that using our most primitive survival instincts (housing, clothing, and food), can actively contribute to employee retention & attraction of the top talents. can also improve performance if the wage policy is advantageous. This means adjusting compensation every now and again to keep employees motivated.
How to Link Compensation and Performance with a Compensation Strategy
The most “classical” compensation system is a system based on hierarchical position. So more or less indirectly linked to seniority. This compensation policy is based on salary scales that link each job to a bracket with a minimum and maximum amount. It is particularly transparent and extremely rigid. It is a uniform application to all employees, regardless of the results achieved. This can unfortunately lead to the loss of your best people, leaving your company at a relatively low level of performance and demotivated employees. Employees who are not involved in the development of your company are the ones who would rather adopt a wait-and-see attitude.
Thus, after hesitating between a fixed compensation and a variable compensation model, more and more companies are now moving towards a system of variable compensation, i.e. a more individualized system, taking into account the productivity, performance, and skills of each employee. Therefore compensation and performance are invariably linked and compensation and performance management should become one of your priorities in HR.
Compensation and Performance Management: a Variable Pay Policy
Performance-based compensation seeks to reward the contribution of employees to the success of the company. In addition to allowing greater flexibility in wage costs (for example if the company is experiencing a decline in activity), this personalization of earnings by introducing a variable part of the salary depends exclusively on previously defined results and motivates and mobilizes employees.
Variable compensation (depending on productivity) can be very beneficial for the company, but one must be wary of the adverse effects that may arise if the compensation policy is poorly regulated. Its negative effects can have an impact on mobility, skills development, or group work (which would be neglected in favor of personal work).