The performance pay should not influence the base salary at all; the old “job” evaluations used to confuse perceived performance with base salary increases through the old 85% to 115% model. This approach was fundamentally flawed for many reasons including; good performance in one year does not guarantee on going above and beyond normal performance in subsequent years and therefore bonus plus pay increase is double dipping. Also the concept of incremental increases certainly would not constitute equal pay for equal work.
Base Salary is calculated for the position say Position A = $95,754 and when there is an appointment made the individuals are assessed and valued (assessed if promoted internally and/or recruited externally). At the time of the appointments the organisation will know the individual value against the ideal designed position (contributing element of the structure). Say 2 appointments are made one might match the idea competence (Incumbent 1 to Position A) and get the $95,754 base while the other (Incumbent 2 to Position A) may not have all the competence (but had potential to develop) and they would be appointed at their assessed base salary of say $89,346. Note: the Letter of Offer should have contained the Learning and Development plan. Allowances, negotiated amounts etc are adjustments to the calculated base salary and should be dealt with as an additional line and not alter the base salary. In say 12 months you would re assess Incumbent 2 and they may now be fully competent and be entitled to the ideal base salary which is now $95,754 plus any market increases that has occurred.
Performance reward should be again set up using a quantitative, envelope process where the individual can be empowered to manage their own performance utilising initiative and innovation in producing the outcomes (and we know from the selection that they are competent to do this). With this approach employees know precisely how much performance reward they will receive (and know what they have to do if they start to fall below on the performance measures). The company, government or NfP etc also know how much return they will get on the performance reward paid out.
The organisation may express performance pay (PP) as a % of Base but that is just to retain correct relativity and if these appointments were on say potential performance pay of equivalent to 20% of base salary then they would be entitled to slightly different PP as they have different contributing value (base salary).
This is the advantages of the new quantitative and precise role sizing, position evaluation and employee/potential employee evaluation tools available today in good Human Capital Management systems (Productivity Commission stated that science has now been put into HRM). Visit www.maxumise.com and links to www.hrmonise.com.