Printer Friendly Version                                    Back to Capsules    Recognizing and Rewarding Performance Employees must be recognized and rewarded for their work or, given today's mobile job markets, the chances increase that they will be lured away. Firms need a clear, coherent, and consistently articulated compensation philosophy. That can be a challenge for many companies, since the tendency is to build compensation practices on an ad hoc basis, with no underlying strategy. A good philosophy involves: a clear understanding of what you pay employees for; an understanding of what accomplishments you want from employees; an understanding that employee compensation consists of both investments and rewards; a compensation distribution matrix that distinguishes between categories of employees; and, an understanding of the need to articulate the compensation philosophy in a compensation policy. A central element of any compensation policy must be pay-for-performance techniques that offer employees incentives to increase productivity and align with corporate goals, and that allow them to share in the bounty that they create. In building such variable pay structures, it's wise to consult employees, so they are committed to the process and it is realistic from their perspective. Some of the options are: Merit pay, which rewards top performance or gives an employee recognition for accomplishing a major one-time task. Lump sum merit awards, which are one-shot financial recognition of strong performance. Spot bonuses, which are one-time awards for meritorious work, generally paid immediately after a significant event. Gainsharing plans, which allow employees to share in productivity gains. Profit sharing, which allocates a certain slice of corporate profits to a pool that is distributed to employees. Stock options, which offer the employee the chance to buy shares in the company in future at a specific price that is below the current market value. Employee share ownership, which gives or asks employees to buy shares in the company. If you would like more information or assistance with Rewarding Performance in your organization, please contact us.