Avoiding Common Pitfalls of Pay for Performance Programs


Pay for Performance – “P4P” – is a great lever to apply to your workforce to align their behaviors with the direction your business needs to go to be successful.  A properly conceived and executed P4P program not only rewards the payees for good behavior, but can be a powerful tool to communicate to your payees what “goodness” is for your business in the first place.

On the other hand, it’s all too easy to implement a program and then be left with the nagging suspicion that it might not have been as successful as you hoped it would be when you started it.  We’ll examine a few common pitfalls here with an eye towards helping you avoid them.

One fairly simpleminded definition of program “success” is that you had a better outcome than you would have had without implementing the program.  And there’s one pitfall – did you end up paying for performance that you would have gotten from your payees even without the program being put in place?  One of the last things you want to overhear at the water cooler is, “Sure, the check was great, but I would have done all that stuff anyway.”  And the absolutely worst thing you can overhear is the sound of your payees spending their time disputing the incentive calculations for performance they would have delivered without the incentive pay.

Related to this is the pitfall of insufficient incentives.  If the incentives are not significant to the payees on the program, the incentives won’t drive meaningful change in the payees’ behaviors and performance.  If you have a well-trained and highly motivated staff, you might be distracting them with the P4P program, rather than incenting them.  Sure, they’ll accept the checks happily, but they won’t necessarily work harder for bonuses that don’t amount to a measurable percentage of their take home pay.  For this reason, sometimes non-monetary rewards are the most valuable.  My name on top of the leaderboard might be worth a lot more – to me – than the $15 dollars you might have been considering paying me.

Part of the measurement of the good outcome is the cost of the program itself, not just the performance of the payees on the program.  We’ve seen companies spend more administering the program than the program is worth.  One common reason for this is that the program is too complicated – far more complicated than needed to motivate and drive performance.  Your payees need a clear statement of what is expected from them and how much that will be worth to them if they deliver.  If you can’t explain it in 25-words-or-fewer, you have probably made it too complicated.  It commonly happens because the company isn’t fully committed to the program – for each part that gives there are more parts that take away incentives.  This is demotivating and can be expensive to administer.

So how do you measure success?  First, do your best to establish a baseline to know whether you are getting your money’s worth for the P4P program when you do administer it.  Be tough about measuring your results and your ROI for the program afterwards.  Talk to your staff to find out how they think they would react to the program if it were put into place, and then fully commit to it when you do.


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