Incentive Pay is Important For Top Performers Even in an Unpredictable Economy

Performance pay is not an entitlement, but a reward. Increasing base pay for all employees at fixed intervals can strain payrolls and do not impact employees’ motivation to improve,

“Compensation experts urge companies to take this opportunity to move farther from a system that relies heavily on across-the-board merit increases to one that focuses on rewarding top performers substantially more than the rest of the field. Companies need a compensation system that catches a top performer’s attention and sends a signal to a poor performing employee. To do this, the system must differentiate between the two,” according to Steve Bates. By offering poor performers the same percentage increase in pay as top performers, an employer may send an unintended message to both groups. Top performers may perceive that their employers’ message is that they are not deserving of rewards that are commensurate with their accomplishments. Similarly poor performers may not become vexed if they receive unsatisfactory performance reviews if they receive raises regardless of the quality of their work.

Source: Bates, S. (January 2003). Top pay for best performance. Human Resource Magazine, 48(1), 31-38. Retrieved from:

http://www.shrm.org/hrmagazine/articles/0103/0103covstory.asp