Pay-for-Performance Trend Still Expanding

June 20, 2007 ( - The pay-for-performance trend is apparently getting hotter as the number of workers whose companies have adopted such programs rose from 35% in 2006 to 41% in 2007, according to a new survey.

A news release from Hudson, a recruiter, about its Rising above the Average: 2007 Compensation and Benefits report, said the growth comes as employers often do not effectively communicate or implement these programs throughout their organizations.

According to the announcement, the connection between pay and performance is not percolating throughout a company, as 56% of managers say employees who do a better job get better pay and benefits, compared to only 32% of non-managers.

In addition, the higher their income, the more likely respondents are to perceive that employees are compensated based primarily on their efforts. Only one-third of those who earn between $20,000 and $40,000 a year recognized the pay-for-performance link compared to 60% of those who earn more than $100,000.

“In some cases, companies may not be doing enough to communicate the connection between pay and performance, leaving many employees in the dark about the factors influencing their pay package,” said Robert Morgan, president of Hudson Talent Management, in the news release. “In other instances, employers may be applying the pay-for-performance principle only to higher-paid employees, sending the wrong signal to those in the lower ranks as to how their contributions are valued.”

Employee Satisfaction

When implemented correctly, pay-for-performance plans impact employees’ satisfaction with their income, the survey found. Seventy-nine percent of workers who are paid based on their performance are happy with their compensation and benefits package, compared to 60% of those who are not paid based on performance.

Workers also expect the leadership team to be held to performance standards – 64% think executive pay should be tied to company performance. However, just 38% of employees say this practice is applied at their company.

Meanwhile, thirty-nine percent of workers believe senior executives earn more than they should and nearly half (48%) of the workforce think the pay disparity between corporate leaders and average employees is too big. On the other hand, approximately one-third (36%) say the pay for senior leaders is appropriate after taking into account their scope of work and fair market rates.

Asked what would do the most to increase satisfaction with their total compensation package, 41% of workers say more money. A distant second is better health care benefits, with 21% choosing that option, according to the announcement.

Other results included:

  • Thirty percent of workers report that their employer does not offer a retirement plan; an additional 9% have access to a plan at work, but do not participate. The youngest workers (18-29 years old) are more likely to work for an employer that does not offer a retirement plan (38%) or choose not to participate (14%).
  • Half of respondents say that when they get a raise, it is to cover a cost of living increase, rather than based on job performance.
  • Sixty-four percent of workers participate in their company's health insurance plan and 21% work for an organization that does not offer one.
  • Forty-one percent of managers say senior executives earn the right amount, compared to 33 % of non-managers.

The annual Compensation and Benefits Report, based on an April 2007 survey of 10,000U.S. workers, is available here .