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How should I reward employee performance?

Guest post by: Cori Maedel

Article Overview: It’s that time of year again when all good Managers ponder the question, “Should I reward my employees’ performance with an increase in pay or through a bonus?” The answer to this age old question lies in the answer of another, much simpler question. Do you want to reward your employees’ good performance in 2010 in a way that will continue on for the rest of their career with you?

How should I reward employee performance?

It’s that time of year again when all good Managers ponder the question, “Should I reward my employees’ performance with an increase in pay or through a bonus?” The answer to this age old question lies in the answer of another, much simpler question. Do you want to reward your employees’ good performance in 2010 in a way that will continue on for the rest of their career with you? If the answer is yes, then you will want to put your entire budget into increasing their salary. The standard method for doing this is to decide upon a base increase that all employees will get, which usually reflects the current cost of living increase. Then create a continuum of increases that mirrors your performance rating scale. For example all employees get a 2% increase, while good performers get a 4% increase and excellent performers get a 6% increase. If however you prefer to reward good performance only in the year that it was obtained, you will want to consider spreading your budget between increases in salary and a bonus based on performance. In this method you would decide on a standard pay increase which is linked to the cost of living increase for the year, or base the increase in pay on where the employee’s salary is in relation to the current market rate for similar roles. Then you would decide on a bonus amount that is directly related to their performance for that year. Rewarding performance through an increase in pay is like the gift that keeps on giving. If their performance slips the following year you do not revoke the increase. Nor should you give an additional increase if their performance improves. Instead the employee will continue to receive the higher salary based on their first year’s performance. Whereas if performance is tied to bonus, if their performance drops in the second year their bonus for the second year would be negatively affected and they receive no residual reward for the first year’s good performance. There is also the hard dollar value difference to consider. Let’s assume that Fred’s salary in 2010 is $50,000 and that his performance remains constant for the next five years. Your practise allows for an amount equal of 5% to be allotted to pay / bonus increases each year. If you tie performance to salary increases and allot the entire 5% each year to an increase in pay it will cost you $16,883 more than if you provided Fred with a 2% salary increase and a 3% bonus each year. The question you need to answer is from an employee satisfaction and morale perspective which is the most effective method for Fred? What would you do? Let us know your thoughts….

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Article Tags: bonus, employee performance, reward



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Re: Franchise of a popular call center - If you have knowledge in running a call center and know how to manage it effectively then it sounds like it’s a good business for you. Workforce management relates to employee matters like payroll, HR, and employee training. Knowledge management relates to research, strategies, innovations and the effective use of technology. In both cases your prime clients are corporate sectors especially those who want to reduce their cost and increase performance at all levels.
Tips for Small Business HR Services - In small business, one of the common mistakes made by human resources area is believed that a new hire will perform exactly as expected. A new employee must be provided information that will help improving his chances of contributing immediately to business or company’s performance. The new employee should be aware about the personal polices of the company during hiring process and provided a handbook during completion of the recruitment process. He/ She should be informed about particular company’s safety and security programs.
Re: Tips for Small Business HR Services - Maybe atleast inform the employee what the employer expects from him and vice versa. Any relationship filled with expectations most especially high and unreasonable expectations eventually ends sour. If the employee does not fit the expectations of the employer you can either initially try to assess the employee during the interview stage if he does not fit the bill then look for another. But if ever you see the potential for improvement in that employee GT is right, training should be provided. With that every end is aware of the expectations surrounding the job.
A good screening process for new hires - Another good screening method is the one McDonalds uses for its new employees. Applicants are subjected to two interviews (i.e. the first one by an assistant manager and the second by the store manager) and they have a "Crew Trainer" work with them for his/her first 3 shifts, each one being only 3 hours in duration. And at the end of the training period, an evaluation is done on the new hire and if he/she passes, there's a 6 month probation period before he/she is considered an "official" employee with full benefits (e.g. granted an employee card that allows them to get 50% off their meals at any McDonalds store location). And during the probation period, new hires are evaluated multiple times by various senior staff members (to ensure there's no biased performance reviews).
Document Your Processes - Make sure that when you do plan on hiring an employee that you document your processes for that employee to follow, even the common sense ones. I recently interviewed a Starbucks employee and was advised that everything including menial tasks were all documented by thier Manager in thier training manual. They very seldom have to ask for clarification. This is important if you plan on having an employee inhouse or even outsourcing. When outsourcing it is more advising about your minimal acceptable standards.


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