Performance Management For Dummies

Chapter 17

Setting Up an Effective Pay System

IN THIS CHAPTER

Setting up traditional and contingent of pay plans

Avoiding pitfalls when implementing a contingent pay plan

Implementing an effective contingent pay plan

Pay is very important to most people, but this chapter teaches you that “throwing more money” at people not always improves performance. And this strategy may actually motivate employees to behave badly.

Also, you learn when and why you should implement a traditional versus a contingent (known as pay-for-performance) pay plan. Importantly, you will also discover pitfalls you should avoid when you implement contingent pay plans.

Setting Up Traditional and Contingent Pay Plans

A traditional approach in implementing reward systems is to reward employees for the positions they fill as indicated by their job descriptions and not necessarily by how they do their work. In other words, employees are rewarded for filling a specific slot in the organizational hierarchy.

Traditional pay plans

In traditional pay systems, your job directly determines pay and indirectly determines benefits and incentives received. Typically, there is a pay range that determines minimum, midpoint, ...