Before implementing a variable pay plan, the most critical strategic step is determining if the plan will achieve the intended result — that is, improve employee and organizational performance. All other decisions (like goal-setting or benchmarking) are secondary to establishing justification for the program.
Extract from HRCI-aligned HR knowledge (Total Rewards and Leadership and Strategy domains):
SPHR requires HR to “evaluate compensation initiatives for alignment with strategic goals and performance improvement.” The decision to implement variable pay must begin with a cost-benefit and impact analysis, verifying that performance incentives lead to measurable productivity or behavioral outcomes.
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