Payroll and performance: exploring the relationship between the two

Ghina Fahs
May 23, 2023
Payroll and performance: exploring the relationship between the two
Core HR
Employee experience

Payroll and employee performance might seem like two completely separate aspects of a business, but they’re actually more interconnected than you might think. Before we get into the details, let's start by defining what we mean by payroll and performance. Payroll is the process of paying employees for their work (which can include their wages, salaries, and benefits), and performance is a measure of how well an employee is doing their job and meeting their goals.

In this article, we'll dive into the interesting relationship between these two topics and how to make sure that the connection is a beneficial one that positively impacts your company's success.

How are they connected?

When compensation is fair, accurate, and timely:

While pay alone is not sufficient enough for job satisfaction, paying employees fairly and competitively is one contributor to keeping them motivated and engaged. When employees feel that they’re paid fairly for their work, they’re more likely to be satisfied with their jobs and perform better.

Research shows that giving employees fair rewards for their hard work leads to an upgrade in their efficiency and overall job performance. Even though this productivity boost might only be around 3%, it can snowball into bigger gains as employees become more motivated and focused. Plus, when employees feel valued and rewarded, they're less likely to leave in search of greener pastures just to make ends meet.

To add to that, employee salaries must arrive accurately and on time, every time. If your people are worried about their paychecks being delayed or incorrect, this can lead to increased stress and anxiety, which can negatively impact their performance. On the other hand, if your employees are confident they’ll be paid accurately and on time, they’ll have one less thing to distract them from staying focused and engaged at work.

As an HR manager or business owner, it's your responsibility to ensure that your employees are receiving their salaries worry-free. This involves keeping track of hours worked, calculating taxes and deductions, and ensuring compliance with labor laws. Keep in mind that if payroll is done manually, it can be far more time-consuming, error-prone, or lead to delays in payment.

This is where payroll automation (insert link to alfii article) comes in. By automating payroll processes, you can streamline your payroll operations, reduce the risk of errors, and ensure that your employees are paid accurately and on time. (Automate your payroll process with alfii for free in just a few clicks)

When incentives are clear:

Additionally, some employees—such as those in sales or business development roles—can benefit greatly from linking pay to performance, such as tying compensation to specific performance metrics, such as sales targets or customer satisfaction ratings. This compensation strategy is one powerful way to incentivize employees to achieve better results, because they have a clear incentive to perform well and contribute to the company's success.

Of course, it's important to ensure that these performance metrics are meaningful and achievable, and that employees have the necessary resources and support to meet them. Otherwise, tying pay to performance can create a high-pressure environment that leads to burnout and disengagement.

Another way that payroll and performance are connected through clear incentives is with the use of bonuses and other forms of variable pay. These types of compensation are typically awarded based on an employee's performance over a certain period of time, such as quarterly or annually. By offering these incentives, employers can motivate employees to work harder and achieve better results, while also providing a tangible reward for their efforts.

It's worth noting, however, that bonuses and other variable pay schemes should be used carefully. If they’re seen as arbitrary or unfair, they can actually have the opposite effect and demotivate employees. So it's important to communicate clearly and transparently about how these incentives are awarded and what employees need to do to qualify for them.

With that being said, what can employers do to make sure the connection between payroll and performance is a positive one?

Here are a few tips:

  • Establish clear and fair pay structures: Employees need to feel that they are being paid fairly for their work. This means clear pay ranges and ensuring that compensation is appropriate for and in line with their skills, experience, and performance.
  • Communicate openly and transparently: Employees need to understand how their pay is determined and what they need to do to qualify for bonuses and other incentives. Make sure to communicate this information clearly and transparently, so that employees feel motivated and empowered to perform well.
  • Offer meaningful incentives: Bonuses and other forms of variable pay can be powerful motivators, but they need to be tied to meaningful performance metrics that employees can control. Make sure to offer incentives that are achievable and that provide a tangible reward for employees' efforts.
  • Provide support and resources: To perform well, employees need the necessary resources and support. This could include training and development opportunities, access to technology and tools, and a supportive work environment.
  • Make automation your best friend: By automating your payroll processes, you can make everything run smoothly, reduce the chance of mistakes, and make sure that your hardworking employees get paid correctly and right on schedule.

In conclusion, the connection between payroll and performance is a strong one, and it's important for HR leaders, compensation owners and payroll managers to understand how to create a fair, clear and sustainable system.

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