Pay for performance is the principle of tying part of an employee's total pay to their measured results - through a merit increase, a bonus, commission, or some combination - rather than paying everyone the same regardless of individual outcome.
What it means
The strength of the link varies by design: some roles (sales, for example) carry a large variable component directly tied to results, while others have only a modest performance-linked increase layered on a stable base salary.
Where it fits in
The appraisal rating is usually the direct input that determines how much of the pay-for-performance component an employee receives, making the link between performance management and payroll most visible at this point.
Key rules
- Ties part of pay to measured results rather than a flat amount for everyone.
- Strength of the link varies by role - heavy for sales, lighter for many others.
- The appraisal rating is usually the direct input determining the amount.
- The clearest visible link between performance management and pay.
