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Performance Pay Schemes in NSW Awards & Enterprise Agreements

Introduction
A white-collar performance scheme
Aligning performance pay to a company's strategic objectives
Performance pay in a warehouse
Defining performances pay broadly

Introduction

Performance pay, bonus and incentive schemes are an increasingly common feature of NSW enterprise awards and enterprise agreements. These performance-based schemes reward employees for a range of achievements. These case studies demonstrate how performance-based schemes have been introduced in four NSW enterprise agreements.

A white-collar performance scheme

A manufacturing company in the Hunter region has embarked on a ambitious long term project to encourage continuous improvement of its administration.

The company conducted an initial audit of its management systems to establish a base-line measure of adherence to the process. After this, audits every three months map the employees' performance against agreed Key Performance Indicators (KPI's). The objective is to improve the level of process adherence by 25% over the life of the agreement. In return, employees receive additional pay if the KPI targets are achieved.

Aligning performance pay to a company's strategic objectives

Using a NSW enterprise agreement, a refractory plant has developed a performance pay scheme which is linked directly to its stated strategic objectives. The company, which was keen to adopt continuous operations, increase employee flexibility and remove demarcations during the life of the agreement, has used these issues as the criteria for the performance pay scheme.

The agreement continues the plant's quarterly "lump sum payment" scheme, which awards reasonably achievable performance with bonuses of up to 5% of remuneration. A consultative committee is given the responsibility to further develop working arrangements with a view to improving business performance. Within the first six months of the 18 month agreement, the parties must implement the committee's recommendations in relation to each of the objectives.

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Performance pay in a warehouse

A manufacturing company's warehouse operations link its performance-pay scheme to its production process. The scheme encourages a process of continuous improvement which achieves gains in productivity and flexibility in the warehouse operations. Each employee can earn an additional 5% on top of their normal remuneration, flowing from the performance pay scheme. A formula set out in the two-year agreement measures the improvement in its production process, using weighted timeliness and quality measures.

Mid-way through the agreement, the parties must review the operation of the performance pay scheme. The performance indicators may be varied, if a majority of employees agree. The performance system builds in a continuous improvement aspect, by setting the previous year's average performance as the benchmark (starting level) for the next year.

Defining performance pay broadly

When implementing an incentive scheme for employees, companies need not focus on financial targets and cash bonuses alone. A medical company has implemented an innovative performance reward system as part of its NSW enterprise agreement.

The performance of the company is assessed against five specific criteria - consumer satisfaction, quality standards, operating numbers, financial performance and staff satisfaction. The agreement sets out detailed performance indicators for the criteria. The rewards available to the employees depend upon meeting performance standards set out in the agreement.

While the staff have the option of taking the reward as remuneration, it can also be taken as paid leave. Attaining the highest level of achievement entitles an employee to six days of paid leave.