Results-based pay induces commitment to goals

Results-based pay systems are applied to slightly over a half of economists. Of the economists working in the private sector, results-based pay is applied to 68 per cent.

Results-based pay in brief:

  • A package of organisation-specific pay methods that supplement basic pay and are tied to achievements.
  • For example, results-based rewards, profit bonuses, synthetic options, profit-sharing bonuses and various share-based systems.
  • Piecework and reward pay are not results-based pay but basic salary.

Results-based pay must be transparent

  • In terms of results-based pay, the transparency and clarity of the system are essential. The remuneration of top management is tied to the company's success, often measured with share quotations that can be followed up by anyone.

In addition to monetary significance, group-based performance rewards have symbolic meaning to personnel. Rewards granted for the attainment of joint goals add to the sense of solidarity and motivation.

The more closely the results-based reward goals are related to the work, the more clearly they affect performance. In fact, results-based pay should have a clear connection to the organisation's strategy.

Characteristics of a successful reward system

  • Rewarding is clear-cut: individuals must understand that their work contribution matters.
  • The applied reward elements are sufficient: an extensive and complex system that brings an income increase of a few per cents does not increase motivation.
  • Sustainable rewarding: the reward system must be long-lasting and take the company forward.

Make informed commitments

Reward systems often leave plenty of room for interpretation. As regards share-based systems, for example, the redemption price of shares and the determination of this price often raise questions.

Potential problems usually occur when an employee is leaving a company. For example, a share-based reward system often involves a long shareholders' agreement with a possible non-competition agreement. Furthermore, according to a company car agreement, an employee may be liable to pay any remaining lease payments for a company car if he/she quits the company in the middle of the leasing period.