Reward, recognize, motivate: The many forms of compensation

Compensation is more complex than just paying employees for their work. It rewards high performers, norms and behaviors to be emulated, and motivates low performers to improve. 

HR and total rewards leaders are increasingly tasked with creating and implementing strategic pay practices that simultaneously maximize productivity and achieve business goals. When an organization's compensation strategy connects performance to pay, it can drive individual performance and, in turn, business performance. 

But it's not as simple as just giving top performers raises and expecting everyone to get the message. Driving performance requires implementation of strategic and thoughtful pay practices across the organization. 

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Rewarding and inspiring top performers 
Salary ranges ensure equitable base pay practices, while at the same time controlling and optimizing compensation spend. However, high performing employees could be at the top of their salary range after years of consistent pay increases. This is a tricky situation. How can you still reward them? But organizations can respond in a way that balances costs and motivates and retains top talent. 

In Payscale's 2025 Compensation Best Practices Report, 51% of organizations said they red-circle employees and limit salary increases for those who are at the top of their pay scale. That means those employees, even if they're high performers, aren't eligible for a salary increase. Some organizations find another way to compensate them, like through lump sum payments. There's not a right or wrong way to approach rewards and recognition, but consistency should be a priority.  

But employees still may feel that their careers have stagnated if they're no longer eligible to receive pay increases. From the organization's perspective, retention of top performers at the maximum of their pay range should be a priority. That being said, financial rewards or salary growth are just two ways to reward employees. 

High-performing employees often want to grow as professionals and are looking for opportunities to do so. Lack of career growth is a common reason for employee turnover, with 67% of individual contributors wanting career advancement, according to MIT Sloan research.  

Career growth doesn't always mean a promotion, though. As employees work their way up their salary range, their managers should start conversations about skills development, leadership training, or new responsibilities.  

Offering learning opportunities to top performers helps them develop the skills necessary for advancement, moving them to a position where their salaries can continue to increase. It also boosts engagement by showing a clear future within the organization.

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Maintaining pay equity in a performance-driven world 
Pay equity is the law. Even when the organization closely ties pay with performance, this does not mean equitable pay practices — or outcomes — are protected. Organizations don't always have the manpower and budget to conduct a dedicated pay equity analysis, so merit cycles are a good place to check in on pay equity. Because of the team members involved in a process that usually requires multiple layers of review, issues are more likely to be identified if you have the right tools in place.  

Managers should review team salaries and identify potential issues, such as recent hires earning more than tenured employees, and address these issues during the merit cycle to ensure that salary increases don't worsen inequities. 

During merit cycles, take these three steps: 

1. Review salaries by variables like job level and geographic location. 
2. Note employees with lower salaries than others in the same or similar job function. 
3. Verify that existing salary differences, or increases that are being granted as a part of the merit cycle, are based on performance, tenure, or skill development. 
 
The merit cycle is a time to evaluate salaries, ask questions, and flag inequities. Don't think of this as an obstacle. It's an opportunity to build confidence in the organization's pay strategies that link pay and performance. 

Everyone in the organization should have confidence in its approach to pay, especially managers, since they are on the front lines of communication. 

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Connecting pay and performance starts with managers  
The annual performance review shouldn't be the first time employees hear about their performance. Managers play a crucial role in performance processes, creating meaningful performance goals, setting clear expectations with employees, evaluating progress and providing clear and actionable feedback in real time. These abilities come from proper training and coaching. 

Organizations are equipped to drive performance through compensation with continuous performance management. To make this happen, HR leaders should empower managers to have confident conversations that help employees understand how their performance impacts their paycheck.  

Here's how HR can enable managers to strengthen the link between performance and pay: 

• Conduct mock discussions to prepare for compensation conversations, especially uncomfortable ones. 
• Provide talking points that align the pay strategy with performance. 
• Encourage ongoing feedback through regular one-on-ones. 
• Recognize achievements with spot bonuses and non-monetary rewards. 
• Discuss career growth and skills development opportunities that connect with compensation. 

Connecting performance and pay requires a proactive approach to performance management. These tactics help managers connect the dots for employees, ensuring everyone is aligned. 
An organization's compensation strategy is a powerful tool to drive individual and organizational performance. Balancing budgets, pay equity and rewarding top performers is complex, but achievable. When the organization is confident in how performance is tied to pay and expectations are communicated clearly, everyone is set up to achieve their goals.