Survey: Linking of Performance to Compensation on the Rise

In the survey, findings showed that performance management and related compensation was on the rise, as was the expected use of third-party software with which to manage it.

The survey stated that senior management is increasingly gravitating towards the paradigm of performance management. Fifty-five percent of respondents reported that their senior management believes that performance management is strategic to the business, where only 8% thought it was an administrative hassle. These numbers differ vastly from just 18 months ago, when only 18% saw performance management as a strategic process. Thirty-six percent considered it a nuisance at the time.

This increase in performance management is often tied to performance-based compensation systems, according to a press release. Although companies usually manage compensation as a separate process, the release asserted, most of the respondents view the connection of performance management and compensation systems as a fundamental requirement.

However, only 25% of respondents thought that their systems of performance management were working well, and 60% rate their systems as adequate.

The use of third-party administration for performance managers should be expected to rise in coming years, as 54% of respondents indicated that they would be using third-party software to manage the performance of employees. Only 11% use such software currently.

“Enterprises across the globe are not fully leveraging their compensation investment due to antiquated pay programs that cannot recognize and reward the contributions of high-performing workers,” said Tim Clifford, Workscape’s President and CEO, in the release. “In order to drive maximum workforce performance, and deliver increased shareholder value, companies must first improve their ability to align employee performance with compensation via the technologies that can automate and link the two processes. When compensation and performance management are effectively linked, organizations reap the benefits of an integrated, measurable, performance-based human capital management strategy.”

The survey was conducted by Workscape in the third quarter of 2004 covering 125 HR professionals.

A complete report on the survey, entitled ‘2004 Performance Management Practices Survey’, may be requested at www.workscape.com/surveyPaper .