How to Successfully Implement Performance-Based Pay

How to Successfully Implement Performance-Based Pay

When it comes to effectively implementing performance-based pay, simplicity is one of the most important aspects to bear in mind. The simpler and more concise your plan is, the more people will understand it and buy into the process.

A performance-based pay plan should also clearly communicate eligibility so employees understand what’s expected of them, as well as their earning potential. This includes defining performance criteria, expectations, and pay increases for which employees will be eligible going forward. Define your pay-out strategy, and identify the exact performance measurements which will be put in place.

In addition to these key tips, below you’ll find some additional dos and don’ts to remember to increase your odds of success with performance-based pay.

The Dos & Don’ts of Holding Performance Conversations

While performance conversations are the responsibility of your managers, HR can provide the initial guidance needed to help managers navigate these meetings successfully. Here are a few tips to recommend.


  • Be prepared and present.
    Both managers and their employees should have the opportunity to prepare, and they should be engaged without any distractions throughout the meeting.
  • Give the discussion enough time.
    If managers are to block off an hour to hold performance-related discussions, they shouldn’t spend just ten minutes with their employees. Encourage them to dedicate an appropriate amount of time to address all performance areas needing to be discussed.
  • Start with the right assumption and positive intent.
    Approaching performance issues can be challenging, but remind managers to start the conversation off on a positive note. They can approach issues in a helpful way to get employees back on track.
  • Share examples and specific actions for improvement.
    Oftentimes, performance evaluations lack meaningful examples. Managers should be able to cite specific instances in which employees could have done something differently.
  • Evaluate relative to a standard.
    Evaluations should be based on standards and what’s expected of the employee in their role, including the contributions they’ve made towards their goals. Managers should use these standards as the primary basis for judging performance, not what everyone else does.
  • Confirm mutual understanding of both expectations and results delivered.
    Expectations should be revisited regularly to ensure employees know what they’re responsible for, and how the results they achieved compare to these expectations.


  • Delay performance conversations.
    Managers may have the tendency to put off meetings because they’re too busy, or because addressing issues can be uncomfortable. It’s critically important that corrections are encouraged actively, instead of waiting for issues to fester.
  • Stack issues.
    In some cases, managers may also allow issues to build up to the point at which there are multiple problems that need to be discussed. This approach can backfire, leaving both parties feeling overwhelmed.
  • Instead of reprimanding, encourage managers to use specific behaviors to explain what employees can do differently next time. They should simply review the expectation, where the employee’s performance fell short, and what they can do to close the gap.
  • Have performance discussions only when something is wrong.

Make sure performance meetings are also being held when things are going well so positive behaviors can be reinforced, too.


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