CONTINGENT PAY
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1/19/2021
Contingent pay defined
Incidence of contingent pay
Criteria for contingent pay
The case for contingent pay
The case against contingent pay
Performance-related pay model
Competence-related pay model
Contribution-related pay
Contribution-related pay model
Pay for performance versus pay for contribution
Factors affecting choice
Contribution pay in a car company
By BPP
1
CONTINGENT PAY DEFINED
Contingent pay is pay that varies in relation to
performance, competence or contribution.
CRITERIA FOR CONTINGENT PAY
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Individuals and teams should have a ‘clear line of sight’ between
what they do and the reward they will receive for doing it.
They need to be clear about the targets and standards required.
The reward must be seen to be attainable and worth having.
The basis upon which contingent pay decisions are made should
be perceived as being fair.
The arrangements for contingent pay should be transparent and
easy to understand.
1/19/2021
By BPP
2
Merits - CONTINGENT PAY
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Pay better people more
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Deliver message that performance, competence and contribution are
important
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Support culture change
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Focus on key objectives and values requirements
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Define and manage expectations – performance and behaviour
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Attract and retain good quality people.
Note: contingent pay, especially performance-related pay, is said to motivate
people. But there is no evidence that this is the case simply because it
seldom meets the criteria set out in slide 3. There is a much stronger case
for the use of intrinsic rewards as part of a total rewards policy to produce
longer-term motivation. But the other arguments for contingent pay as set
out above are still valid.
1/19/2021
By BPP
3
Demerits - CONTINGENT PAY
Problems of:
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defining criteria
measurement
achieving fairness and consistency
gender bias
performance management, which may not exist or is ineffective
relying on capability and willingness of managers
trade union hostility
limited funds
inhibiting team work
ability to motivate (the rewards may be insufficient to provide long-term
motivation: those who do get rewards can therefore be disappointed, while
those who don’t get rewards will be demotivated).
1/19/2021
By BPP
4
PERFORMANCE-RELATED PAY MODEL
Pay related to the achievement of agreed results (targets or outcomes)
Pay
Performance
Formula
Rating
Performance
Agreed
outcomes
(targets)
1/19/2021
Performance
measures
By BPP
5
COMPETENCE - RELATED PAY MODEL
Pay related to the level of competence achieved
Agreed
competence
levels
1/19/2021
Competence
level
definitions
Competence
(evidence of
level)
Rating or
assessment
By BPP
Formula or
methodology
Competencerelated
pay
6
CONTRIBUTION - RELATED PAY COMPOSITIONS
Outcomes
What results have
been achieved
1/19/2021
Contribution
The part played by
someone in achieving
a team or
organizational goal
By BPP
Inputs
How the results
have been
achieved
7
CONTRIBUTION-RELATED PAY MODEL
Agreed
outcomes
(targets)
Performance
measures
Performance
(results
achieved)
Rating or
assessment
Agreed
competence
levels
1/19/2021
Competence
level
definitions
Formula or
methodology
Contribution
pay
Competence
(evidence of
level)
By BPP
8
CONTRIBUTION PAY IN an AUTOMOBILE COMPANY
Outputs
• Sales margin
Commission
• Sales revenue
• Product mix
• Call/conversion rates
Throughputs
• Activity rates
Incentives
• Teamwork
• Customer ratings
• Market/product knowledge
Inputs
• Sales/customer service skills
Base pay rise
• Planning/organizing skills
• Past performance
1/19/2021
By BPP
9
CONTRIBUTION PAY IN A CONSUMER
PRODUCTS MANUFACTURER
Objectives
Competencies
Interim
Values
review
Performance
review
Vision and strategy
Reward and recognition
Career management
1/19/2021
By BPP
Training and development
10
CONTRIBUTION PAY IN A MANUFACTURING COMPANY
New salary
Market worth
Personal value
Capabilities
Personal
required
capabilities
Business
Performance
plan
review
1/19/2021
Performance
Objectives
objectives
agreement
By BPP
Job family
comparisons
Performance
Bonus11