Lately, I've been working with several clients who are grappling with the concept of Pay for Contribution, rather than Pay for Performance. Much of this transformation in thinking is coming about as more and more organizations ask the questions, "What do we pay our employees for, really?" Pay for Performance tends to be a historical view, paying employees for what they have accomplished in the past. It is based on the premise that the employee, with his or her manager, has set SMART goals for the performance period, and has been evaluated against how well he or she achieved the goals identified.

Pay for Contribution, on the other hand, can be backwards or forwards looking, however, it is based more on the premise that the employee has contributed value to the organization is some form or other - whether by growing critical relationships, developing valuable intellectual property, implementing key infrastructure, etc. Often, Pay for Contribution is intended to reward more "intangibles" - elements that add value to the organization, but are difficult to quantify or establish objectives for up front.

And herein lies the rub. Organizations tend to like Pay for Performance because it is based on pre-set goals with specific measures. The employee achieves the goal or doesn't achieve it, and is rewarded based on this fact. Employees like Pay for Performance because it is predictable (assuming goals and performance measures are very clearly laid out.) Pay for Contribution tends to be more fuzzy. Organizations often are not clear on the value of a "contribution" until some time after it has been made. The result is that the criteria in Pay for Contribution are often unclear to the employee, and the resulting reward unpredictable. And if there is one thing that has the potential to frustrate employees, and negatively impact morale, it is when the paycheck is not what is expected.

Whether an organization pays for Performance or for Contribution, it is critical that the organization define as clearly as possible for itself and employees what "performance" and / or "contribution" look like. Even if contribution is not as easily quantifiable or measurable as some performance goals, it is necessary to at least provide a picture, an example, an anecdote - so that employees have some information in order to better decide how to do their work. And the earlier in the pay cycle these expectations are made clear, the better. That way, everyone has a shared understanding of where everyone is going, what it takes to get there, and how rewards will be distributed.

Does your organization have a "Pay for Contribution" policy? How is contribution defined? How is it valued? What works well about it, what doesn't? Would love to hear others' thoughts and experiences on this topic.