How to Make the Coexistence of Pay Transparency and Performance-Based Pay in the Organization
In order to adopt a performance-based pay system, a corporation would need to communicate to managers pay levels for various sorts of occupations as well as the positioning of strong performers within those levels. As a result, if the company pays higher-performing employees more, managers who implement wage increases will need to understand how to position high-performing employees in comparison to mediocre performers
How to Make the Coexistence of Pay Transparency and Performance-Based Pay in the Organization
Pay transparency and performance-based pay appear to be diametrically opposed, with pay transparency emphasising openness and fairness in compensation and performance-based pay rewarding individuals for their accomplishments and contributions to the firm. Can “Pay Transparency and Performance-Based Pay” coexist in the organisation, and if so, how?
We gathered some HR leaders’ perspectives on “Pay Transparency and Performance-Based Pay” and how they can coexist in an organization’s single system.
While “Pay Transparency” and “Performance-Based Pay” are distinct concepts, many top HR leaders believe they may coexist in the same compensation structure.
Vivek Tripathi, VP-HR of NewGen Technologies, stated, “Pay transparency is higher in companies that truly give performance-based pay.” He also mentions that organisations who refuse to accept or successfully implement performance-based pay have lesser pay transparency.
For example, in order to adopt a performance-based pay system, a corporation would need to communicate to managers pay levels for various sorts of occupations as well as the positioning of strong performers within those levels.
As a result, if the company pays higher-performing employees more, managers who implement wage increases will need to understand how to position high-performing employees in comparison to mediocre performers. As a result, if there is no open communication, the compensation system may be less transparent.
A Thiru, a C-suite HR professional leader, agrees with Tripathi, and said, “The policy guidelines on eligibility, maximum limit (say 10 to 40 percent of basic or CTC of the eligible employee based on work levels), annual goal setting and its proportionate percentage to company level, division /department/ individual level, and if necessary, milestone-based achievements for projects are to be communicated ahead of the year and payment to be effected on the following month along with w The only thing that should be kept private is the amount paid to people, not the eligibility requirements.”
“A performance-based pay system combined with pay transparency is one of the most dependable ways to bring transparency to an organisation because it is based on employees’ performance orientation,” stated Pradyumna Pandey, head-HR, manufacturing, Hero MotoCorp.
Because performance-based compensation is intended to reward individuals based on their individual contributions to the organization’s goals, it has the potential to drive employees to perform at their peak and improve their overall job performance.
Compensation transparency, on the other hand, can help to increase employee trust and engagement by offering clear and open communication about how compensation choices are made. Employees are more likely to feel valued and driven to do their best when they understand how their pay is calculated. “It’s also about explaining why and how we, as employers and an organisation, want to reward them.
“So, I always feel that when we talk about performance pay and show our commitment to performance pay, that’s part of performance transparency,” Pandey says. He also mentions how digitization and technology innovation have made the procedure much more convenient.
“Companies must have a process in place to persuade their top performers that they are receiving appropriate performance pay.”
However, without an adequate performance management system in place, correctly measuring performance and determining the extent to which it contributes to the organization’s output can be difficult.
Some professions, such as creative or collaborative roles, may make objective performance evaluation difficult. In such instances, relying simply on performance measures to decide remuneration may not be a viable method. As a result, organisations may need to examine alternate pay-determination methodologies, such as peer reviews or market data.
Organisations can develop a pay system that fosters justice, engagement, and trust by being honest about the pay system and recognising employees’ privacy concerns, balancing objective performance measurements with other techniques, and matching performance goals with organisational values.
“There are two main factors that affect employee engagement.” The first step is to put in place transparent systems to foster discipline. The second factor that influences motivation is leadership behaviour.
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