Thursday, February 28, 2008

What I’m Hearing…Pay for Potential

HR software company Vurv Technology is incorporating a new concept into its latest performance management tool – pay for potential. In HR we talk about across the board increases, merit pay, pay for performance, and pay at risk. But how often do we think about paying some now for what they might do in the future?

Reflecting on our various client engagements, I can only think of one organization that said future potential / contribution should be a factor – but not the only factor – in determining pay and placement in range.

In theory, paying someone for their future contributions sounds like an idea with merit. It encourages people to try hard, to do their best, and to stay with an organization. But what if that person never delivers? What can the organization do about those lost dollars?

On the one hand, ending up with an average performer and solid contributor who keeps down the cost of turnover isn’t necessarily a bad thing. However, pay for potential seems to have too many risks and intangibles associated with it to generate a sufficient ROI. Effective, continuous communication and more rapid pay increases (e.g., every 3 – 6 months) may be just as effective in giving high performers what they need to stay motivated and engaged.

No comments:

Post a Comment

Stat Counter