Dive Brief:
- While 69% of HR departments said total employee compensation is important to achieving business and HR goals, only 25% believed they were very effective in this area, according to analysis from HR research and advisory firm McLean & Co.
- In a report titled “Design a Purposeful Pay for Performance Program,” McLean found that workers who were satisfied with their total compensation said they were 1.8 times more likely to “expect to remain with their organization one year from now,” per a press release accompanying the report.
- Employees who believed they would be compensated fairly if their performance exceeds expectations were also 2.7 times more likely to be engaged, per the research.
Dive Insight:
The findings suggested that when employees see a clear link between their contributions and their compensation, overall trust and engagement become stronger and retention is more likely.
“Pay for performance is never just about pay,” Lexi Hambides, director of HR research and advisory services at McLean, said in a statement. “It sends a powerful message about what the organization values, who it invests in, and how effort translates into opportunity. When that connection is clear, organizations see improvements in motivation, retention, and engagement.”
Nonetheless, McLean’s research said that many pay-for-performance programs “fail to clearly connect rewards to results, weakening their ability to motivate employees and reinforce strategic priorities.”
In addition, many companies are faced with what McLean called “predictable barriers.”
“One-size-fits-all program designs often fail to reflect organizational culture or financial realities, while budget constraints can limit meaningful differentiation between top and average performers, weakening motivational impact,” the press release said.
In addition, trust can be eroded if a company provides insufficient performance data, unclear objectives or limited leadership sponsorship. Unless an organization has intentional plans, even the most well-funded pay-for-performance programs may struggle to deliver on the results they may have promised, per the report.
A recent report from Payscale said that performance ratings-based salary increases, while still popular, may be losing some ground to “peanut butter” raises, which give workers across-the-board salary increases.
Meanwhile, 58% of workers said their salaries aren’t keeping up with inflation and 73% cited increased salary as their top priority, according to Monster’s 2026 WorkWatch Report.