Posted by Sarah Lardner on 11 October 2024
The Future of Performance-Based Pay Schemes
Employee motivation is crucial to any organisation because it helps kick-start or maintain a desired level of engagement, productivity and performance. Regardless of their role or level, workers who feel motivated are more likely to invest in the long-term goals of a business, take an interest in the setting of those goals and contribute to meeting or surpassing them.
Performance-based pay schemes, bonuses and LTIPs (Long Term Incentive Plans) all have a role to play now and moving forward. Each brings a slightly different flavour, but all can help attract and retain top talent and align employees with the company vision.
Performance-based pay
Where performance-based schemes are in place and working well, we are seeing them becoming more data-driven, meaning less reliance on subjective judgement calls.
They are also becoming more practically aligned with skills acquisition and development. In this way, rather than focusing purely on outcomes, pay can be linked to employees mastering new skills or attaining a higher level of proficiency, incentivising learning.
As well as building a more adaptable and flexible workforce, this also builds on the ideas of fairness and equity which are so often embedded now at the heart of a business's plans.
Long Term Incentive Plans (LTIPs)
Traditionally, Long Term Incentive Plans were seen as a tool for engaging senior management. They are still being used as a powerful tool for retaining high-performing executives but now also for incentivising employees across various levels.
LTIPs give companies agility, especially in the realm of equity-based plans, and there is a transformative role being played here by newer tech firms and start-ups, particularly since the pandemic. These kinds of companies are leading the charge in customising LTIP components to create incentive plans that best suit their employees' needs.
In doing this, these innovators are still using them primarily to retain talent, but also to reward performance, foster wealth creation and supplement cash salaries. This marks a strategic shift in LTIPs from rewarders of performance to creators of lasting wealth and value.
Bonus schemes – showing their softer side
Whereas the annual bonus was once an expected transaction delivered in the run-up to the end of the year, it is now evolving both in terms of the employee assumption and the company offering.
For a start, some bonus schemes are incorporating non-monetary elements aimed to deliver value in a different way, for example by offering flexible working, professional development or better work-life balance. All are designed to contribute more to their workers’ satisfaction, well-being and motivation than just their bank balance.
Measuring ‘success’ is also evolving to incorporate a greater emphasis on soft skills like leadership, collaboration and teamwork, and to reward those who are espousing values like fairness and wellbeing and showing alignment with company policies championing diversity and inclusion or ESG.
Championing the individual
At the same time, though, bonus scheme design is also shifting towards individualised reward, personalising bonuses to align with a worker’s specific goals and preferences for a more meaningful end product.
This often manifests as a more frequent ‘event’ and can be tethered to a company’s recognition scheme, helping employees feel valued and appreciated more often than once a year, and with far more relevance to the task in hand.
Of course, all these approaches rely on good management but also crucially on data, measurement and innovation in analysis. Moving forward, there is no doubt that the evolution in AI will accelerate and enhance our ability to produce and analyse performance data. Perhaps more interestingly, it will also open up new ways to measure and even predict those ‘softer’ skill accomplishments, and to match suitable non-financial incentives and targets to each and every individual.
