Insights on Implementing Pay for Performance System and Employee Grading with Skill-based Compensati

Hi All,

Due to the challenges faced in the IT industry regarding retaining people, our company has decided to implement a grading system to distinguish top, medium, and low performers. This system will be directly linked to their compensation. The grading system we aim to develop will consider not only performance but also the value the employee brings to the organization in terms of their skills and knowledge.

Could someone provide suggestions on this matter?

Regards,
Sanjana

Dear Sanjana,

You can try out a point system that will be given to the employees in different fields such as:

- Software knowledge
- Communication skills
- Behavior within the group
- Learning ability
- Leadership quality
- Ability to lead
- Innovation
- Query handling
- Problem-solving
- Projects
- Timely completion
- Perfection
- Customer satisfaction
- Educational qualifications
- Relevant degrees/diplomas acquired
- Etc.

Please let me know if this model works out. You can also try out a format similar to the one attached.

Thanks,
Manas :) :D

Thank you, Manas.

This will help. However, I am looking at grading the high performers versus the low performers for the entire organization. While this will show the same, I am also looking at a particular employee, maybe key because of his product knowledge or in the market where the skill is still niche. We would like those people also to be in the critical mass of our organization.

Do let me know if you have any suggestions on how we can identify these.

Regards,
Sanjana

Hello Sanjana, I admire your company’s courage in going down the pay for performance road. Your company will need to be very careful as many companies implement pay for performance and see motivation actually go down because of poor design and implementation.

A key reason for this is that the system needs to be both transparent and fair as well as the reward seen as worthwhile. There is no substitute for expertise in delivering in this difficult area. Any good book on HR will cover the basics of pay for performance systems.

I have a couple of comments on the system you are proposing. You may find that the number of grades is insufficient to distinguish the various performance levels. Five grades will be better, and for the quantity of reward, you could partly tie the amount of the reward with the degree to which the employee met/surpassed their measurable goals. And will you reward wanted behaviors, like customer focus and teamwork, or will you just reward performance. You will also need to decide whether rewards will be in the form of one off bonuses or salary increments or a combination of both.

As for skills, yes, some companies have implemented skills based pay to reward multi-skilling and flexibility, not necessarily to meet market relativities for skills in demand. Mixing reward for skills and reward for performance has its own challenges.

How will you balance and prioritize the different criteria? For example, who will be rewarded more: the employee with many skills but can’t reach their performance targets, or the employee with fewer skills but high in drive so that they surpass all of their targets? These are the types of questions that you will need to resolve. And resolve them in a way so that the system makes sense, is transparent and can be accepted as fair by employees.

Vicki Heath

Director

Business Performance Pty Ltd

http://www.businessperform.com

Dear Sanjana, 😊

I am convinced with the criteria which you have adopted for the hard skills, but you can also try the continuous rating scale method. For soft skills, you cannot measure the effectiveness in quantitative terms. So, apply the group comparison method, or you can also apply the critical incident method.