3 Simple steps to turn your KPIs into Performance Related Pay incentives

Scorecards are great to show at a glance whether performance is on or off target for one or more key performance indicators (KPIs). They are ideal for benchmarking, and can show your organisation how well it is performing against goals, previous performance, and competitors. But they carry risks too as if you aren’t monitoring the “right” performance indicators, you’re missing out on an opportunity and potentially engendering the wrong behaviours.

“Linking performance related pay to your KPIs is a trick that many small to medium sized companies fail to leverage.”

Performance related pay can be designed to provide an incentive to improve results and reinforce the company’s performance culture. So let’s provide you some quick tools on how this can be done to:

• Reward employees for achieving national, individual and where appropriate, business specific and/or functional goals.
• Link the interests of employees’ to those the company as a whole and its stakeholders and customers.
• Emphasise safety, operational and financial performance.
• Reinforce the company strategy and key goals.

“Performance related pay scheme can be used to align business objectives with individual reward.”

Step 1: Develop a scorecard for your business area

As varied as the organisations KPIs can be customised for different teams to drive performance. You can ensure that no payment will be made in respect of any performance measure which fails to exceed the minimum level of performance (X%). Below we have provided a simple example of a general business scorecard which can be used to drive performance, operational and safety improvements.

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Step 2: Use the following process to calculate Performance Related Pay

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Step 3: Use the following process to pay your staff

Key Points

• You can ensure that no payment will be made in respect of any performance measure which fails to exceed the minimum level of performance (X%).
• Performance related pay can be used to reward employees for achieving business specific and/or functional goals and link the interests of employees to those the company as a whole and its stakeholders and customers.
• Balance scorecards can be used to emphasise safety, operational and financial performance.