1. Replace subjective performance measures with objective performance measures where performance review is based upon supervisor perceptions of an employee's performance rather than objective results
2. Replace bonuses with pay for performance. Bonuses are 'after-the- fact' discretionary payments to employees for a job well done. Though there is nothing wrong with this practice, it cannot improve or sustain employee performance since the employee is not told in advance what must be done to receive the payment. For bonuses to motivate employee performance the employee would have to be 'clairvoyant'.
3. Replace annual performance measurement with more frequent measurement. Performance measurement should be based on objective data and feedback should be provided to employees at least monthly.
4. Replace large group measures with small team and personal performance measures.
5. Replace broad financial measures with actionable measures. When designing a pay for performance plan always ask, "How can the employee directly improve this measure's results through a change in personal behavior?"
6. Replace unbalanced performance measurement plans with balanced plans. One dimensional performance pay plans often yield unintended results. Once a performance measure is defined, the next question should be what adverse impact could a total employee focus on this result produce? If such an impact is possible, this outcome must also be measured and included in the measurement plan.
7. Replace discretionary pay for performance plans with rule driven plans. A successful pay for performance program must be as reliable and predictable as the traditional wage and salary program. A common mistake is to constantly change the program parameters and requirements. Employees will not invest time and effort in a program in which the measures, criteria, and pay potential change frequently and unpredictably.
In recent years, several articles have appeared that argue that pay for...