From the August 2000 issue of Entrepreneur

If you base raises and bonuses on performance, do your employees know what to do to qualify? Employees who know from Day One not only what duties are expected of them but also specifically what they need to do to earn raises and bonuses are more likely to deliver consistently high performance and have a greater commitment to the company than those who aren't sure.

"The idea that if you do X, you will receive Y has been a central part of the compensation for sales professionals for many years, and it can work for other positions as well," says Randy Pennington, president of Pennington Performance Group, a leadership and management-consulting firm in Dallas. "It might not be tied to a promotion, but it definitely relates performance to increased income."

It's not always necessary to specify the amount of money. "There are businesses that set clear objectives and goals for employees with the understanding that if employees meet those objectives, they will be considered for a raise, without stating how much the increase will be," says Pennington. "The idea is [employers] will do something, but they don't want to be tied to a specific amount in case the company's overall revenues can't support it."

Objectives and goals can be based on production, skills mastered or other measurable performance issues, as long as employees know everything they must do to get raises. "When employees know how to exceed the expectations, they will make the commitment to excel," says Pennington. "Today's workers want to be in control of their own destinies. The more you can do that, including telling them what their specific compensation will be based on results, the more likely you are to keep them feeling connected with your organization."

If you make the promise and the employee delivers, then so must you. "The first time you don't provide a raise after communicating the specific criteria, your credibility is lost," Pennington says. "Good employees will start circulating their resumes, and morale will suffer. This is a great tool for giving people control, but it requires a great deal of commitment from the company's leadership."


Jacquelyn Lynn left the corporate world more than 13 years ago and has been writing about business and management from her home office in Winter Park, Florida, ever since.