Ramesh R
Team Member - Human Resources
Hr Professional

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I want to implement performance based variable pay system in my organization. Can any one tell me how do i implement the same and how do i consider organization's performance also while giving rewards to employees.

One wy to introduce performance based pay hikes is:
Keep a band of salary hike- that is kind of assured to an employee with expected performance ( say a 3 rater)
Based on the ratings one gets in appriasals he gets additioanl hike on that basic hike
For Example: Person who gets a rating on 3 on 5 will get 8 % hike now you could frame some thing like like this
3.5 rater wil get additional 3% so total 11%
4 rater will get additional 7% & so total 15%
4.5 rater will get additional 10% so total 18%
this will be trually on the ratings a person gets when his performance is appriased at the year end and will boast the individual to perform better in the coming year.
Will help you to distinguish good performers from avaerage performers and pay them better.

You can try this way.
Normally performance pay is an annual payment, which will be inlieu of Bonus. This is more like sharing the profit of the business based on the business results and the employee performance. To claculate the performance pay the system that we follow is:
Individual performance is rated in a 5 band scale starting from Unsatisfactory to Exceptional, which is factored in a scale of 1 to 10
Company Performance is calculated on various factors which will be assesed by the Top Management and is in a scale of 1 to 3.
For example : an individual is rated for his performance in the 5 band scale and his corresponding incentive factor is 7.5. Company is rated 2.7 by the management. His incentive is worked as follows
7.5 x 2.7 = 20.25 x Gross Annual Cost / 100
for example if his Gross Annual Cost is 400000 his incentive would be 20.25% on his Gross Annual Cost i.e. Rs.81000.
Hope this is of help to you.

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