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No one-size-fits-all solution exists for a company's pay-for-performance programme. While the conventional thinking is that pay for performance means variable pay, a new Mercer research shows that it is a much more nuanced concept than most organisations realise, with short shrift given to alternative models of pay for performance that may yield better results.
The Mercer report, Talent and Tournaments: Alternative Models of Pay for Performance, outlines three models that can be used as alternatives to or in combination with traditional variable pay models.
In a promotion-focused or 'tournament' model, pay varies from one career level to the next, with less emphasis on differentiation based on performance between employees at the same level. In this model, competition for advancement motivates employees to perform well.
In a membership or 'efficiency wage' model, overall pay levels are targeted above the market median, and employees must perform to high standards to stay with the organisation.
In a service model, a trajectory of planned increases shifts pay from early to later in the career, once performance is credibly demonstrated. This model also locks in employees over the long haul.
