Only one in five employers believes that their existing merit pay approach is effectively driving performance. Traditionally, the three standard tools for motivating employees have been perks, benefits and salary—but in today’s workplace, it takes much more to motivate behavior and keep employees engaged.

If an organization wants to attract and retain the best talent, it must stay in tune with the beat of its workforce. Who our workers are and what they value has changed. Today’s workplace is collaborative and transparent, and employees are greatly motivated by opportunities for growth, development and learning. A few years ago, performance management and compensation were tightly linked across most companies because we understood compensation to be the biggest motivator of performance. But that’s no longer the case.

When employees find purpose and opportunities for growth, they’ll work harder and stick around. What has the biggest impact on engagement? Turns out it’s holding frequent conversations between managers and employees to keep them informed and on track. Apart of monetary compensation, employers should be aligning employees’ work to the big picture, listening to what they have to say and helping them grow.

Setting more ambitious goals
When compensation is removed from the performance management picture, it frees managers and employees to set more ambitious goals. Tightly coupling goals to compensation—by paying employees a percentage of their salary based on specific objectives for example--induces employees to exaggerate obstacles and sandbag their abilities. Compensating employees fairly, combined with frequent feedback and opportunities for development, does far more to encourage employees to set a high bar and go all out to clear it.

Until just a couple years ago, I was a big believer in management by objectives (MBOs). In my previous role, we utilized an MBO model and executive team bonuses to drive employee performance. Yet I found these methods were incompatible with the new preferred style of working, where a greater focus is placed on frequent feedback, mentoring and coaching. When employees stay focused on how their own work relates to corporate strategy instead of checking things off a list, it dramatically improves their sense of connection and engagement, while aligning the organization.

Laszlo Bock, Google’s SVP of People Operations and author of Work Rules!, agrees. Concerning performance and compensation, he says, “If you want people to grow, don’t have those two conversations at the same time. Make development a constant back and forth between you and your team members, rather than a year-end surprise.”

To get employees to perform at their highest level, discussions around compensation and performance must get divorced. Instead, I recommend paying employees a fair wage and setting really high expectations. Goals, or objectives, should be loosely coupled to pay, meaning they are used for performance evaluation and merit increases. Placing a strong emphasis on ongoing performance development does far more to motivate employees.

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