High Differentiation of variable pay vis-a-vis performance  

Compensation

Compensation design, its fulfillment and servicing is core to driving employees' performance & capabilities. An execution-focused compensation structure will reward both on goals & leadership. It will provide a reasonable differentiation across levels of performance. It will work on near-term to long-term retention and consistency of performance.


High Differentiation of variable pay vis-a-vis performance


It is important to have a broad range in the variable pay component at all levels. It provides the earning potential as an immediate opportunity which drives the employee to meet or exceed his/her short term goals. It also creates a criteria for distinction based on performance.

This implies that the range of variable component itself should be broad so as to allow plenty of room for explicit differentiation between employees whose performance is high and those who do moderately and the under-performers. HR can provide a large range of the variable component which yields enough “track” to run in. Aided by effective execution of the Rewards and Recognition system, a broader range of incentives can set up role model employees which can serve as pillars of motivation to others. It also sends out a clear message to the employee community that the high performers are clearly recognized and suitably rewarded. This truly materializes the phrase “Pay for Performance”. In fact, this large range of variable pay can serve as a forerunner to the learning and development initiation exercise.