Sample Pay-for-Performance Framework

Sample_Documents

DISCLAIMER: This is a sample template provided for informational purposes only. It does not constitute legal, tax, or financial advice. Organizations should consult their own legal and tax advisors and tailor this document to reflect their specific business needs, geographies, and applicable laws.

Document Header

Document Title	Pay-for-Performance Framework
Document Type	Foundational & Strategic
Company	<Company Name>
Version	v<Number>
Effective Date	<Date>
Last Reviewed	<Date>
Next Review Date	<Date> (recommended annual review in Q<Number>)
Document Owner	<Role/Department> (e.g., Total Rewards, HR)
Approved By	<Approving Body> (e.g., Compensation Committee, Executive Team)
Geography	<Country> and any other applicable jurisdictions
Related Policies	Performance Management Policy, Salary Administration Policy, Short-Term Incentive Plan, Long-Term Incentive Plan, Sales Compensation Plan, Recognition Program

Purpose and Objectives

• Define a consistent, equitable, and transparent approach to pay-for-performance at <Company Name>
• Align rewards with business results, values, and desired behaviors
• Differentiate pay outcomes based on measurable contributions and impact
• Support attraction, motivation, engagement, and retention of critical talent
• Ensure compliance with applicable laws and internal governance standards
• Provide a practical framework HR and managers can apply during annual and off-cycle pay decisions

Guiding Principles

• Performance-driven: Total rewards outcomes reflect what and how results are achieved, balanced with market competitiveness and internal equity
• Market-aligned: Pay programs target a defined market position (e.g., median) based on relevant labor markets and job architecture
• Differentiated: Meaningful differentiation rewards top contributors while maintaining fair treatment and pay equity
• Simple and transparent: Programs are understandable to employees and administrable by HR and people leaders
• Sustainable: Funding and outcomes align with financial health, risk management, and long-term value creation
• Globally consistent, locally relevant: Core standards are consistent, with local adaptations for laws, practices, and currency
• Ethical and compliant: Programs meet legal and regulatory requirements and reinforce values-based conduct

Scope and Applicability

In Scope

• All non-union, non-commissioned employees of <Company Name> in <Country> and eligible international locations
• Base pay administration, merit increases, market adjustments, and promotions
• Short-Term Incentive (STI) design, eligibility, funding, and payout mechanics
• Long-Term Incentive (LTI) eligibility, grant sizing methodology, and vesting principles
• Recognition programs for spot, project, or on-the-spot awards
• Governance, budgeting, approval thresholds, and compliance controls related to pay-for-performance

Out of Scope

• Sales incentive compensation plans (covered under a separate Sales Compensation Plan)
• Collective bargaining agreements or represented populations in <Country> or elsewhere
• Executive compensation for roles covered by the Compensation Committee Charter (if applicable)
• Broad-based benefits, pension plans, and perquisites

Applicability and Exceptions

• This framework applies unless explicitly superseded by local policy, legal requirements, or formal exceptions approved by <Approving Body>
• Local HR must document any deviations due to legal, regulatory, or works council requirements and seek pre-approval from <Role/Committee>

Effective Dates, Review Cycle, and Change Management

• Effective Date: <Date>
• Review Cycle: Annual review in Q<Number>; off-cycle updates permitted for legal changes, M&A, or material business shifts
• Change Approval: Changes require approval by <Approving Body> after review by <Role/Department> and Finance
• Communication: Material changes will be communicated at least <Number> days prior to effective date

Roles and Responsibilities

• Board/Compensation Committee (if applicable): Approves overall framework, incentive plan designs, and LTI guidelines for covered populations; oversees risk and pay equity
• CEO and Executive Team: Endorse business alignment and funding decisions; sponsor culture of performance
• Finance (FP&A, Controllership): Validates budgets, accruals, and financial impact; confirms funding outcomes
• Total Rewards/Compensation (Document Owner): Designs programs, sets market positioning, manages annual cycle, ensures compliance, runs calibration and analytics
• HR Business Partners: Advise managers, coordinate calibration, support organization design and job leveling, escalate exceptions
• People Leaders/Managers: Set goals, provide feedback, complete assessments, make pay recommendations within guidelines and budgets
• Legal/Compliance (as needed): Reviews for legal compliance, risk, and governance
• Payroll and HRIS/Systems : Execute payouts and salary changes; maintain data integrity; produce reports
• Internal Audit/Risk (as needed): Reviews governance, controls, and adherence to policy

Framework Overview

• Total Rewards Components within pay-for-performance:
  • Base Pay: salary ranges, merit increases, market adjustments, promotions
  • Short-Term Incentive (STI): annual cash bonus tied to company, business, and individual performance
  • Long-Term Incentive (LTI): equity or cash awards aligned to multi-year value creation
  • Recognition: spot or project awards for exceptional contributions outside regular cycles
• Performance Inputs considered for pay outcomes:
  • Quantitative results versus goals, leading indicators, and financial performance
  • Qualitative assessment of behaviors aligned to <Company Name> values
  • Market competitiveness and internal equity (compa-ratio, range penetration)
  • Talent segment considerations (critical skills, scarce roles)
• Differentiation Targets (illustrative): Top performers earn materially higher increases and incentive payouts than solid performers

Performance Management Alignment

Goal Setting and Cascading

• Annual goal setting in Q<Number> with at least <Number> SMART goals per employee
• Goals cascade from enterprise and business unit priorities; include both results and behaviors
• Mid-year and year-end check-ins required

Rating Scale and Definitions

• 5-Point scale recommended: 5 Exceptional, 4 Exceeds, 3 Achieves, 2 Partially Achieves, 1 Does Not Achieve
• Calibrations held cross-functionally to ensure consistency and mitigate bias

Performance Calibration and Governance

• HR facilitates calibration sessions at department and enterprise levels
• People leaders justify outlier recommendations with evidence
• Final ratings approved by <Leadership Body> prior to comp cycle lock

Timeline Alignment

Milestone	Target Timing
Goal Setting	Q<Number> <Date Range>
Mid-Year Check-In	Q<Number> <Date Range>
Performance Evaluation Submission	Q<Number> <Date Range>
Calibration and Approvals	Q<Number> <Date Range>
Compensation Decisions Finalized	Q<Number> <Date Range>
Communication and Payouts	Q<Number> <Date Range>

Base Pay Administration

Salary Structure and Market Positioning

• Market data sources: <Vendor Name>, <Vendor Name>, and industry surveys relevant to <Country>
• Structure type: <Type> (e.g., broadbands, grade ranges, career levels)
• Market positioning: Target <Percentage> of market (e.g., at median 50th percentile), with flexibility by talent segment
• Range architecture: Minimum, midpoint, and maximum with typical spread of <Percentage> to <Percentage> by grade (e.g., 30% to 60%)
• Currency and exchange: Local currency application; FX reviewed quarterly by <Role/Department>

Merit Increase Guidelines

• Merit budgets determined annually by Finance and Total Rewards based on market movement, performance distribution, and affordability
• Merit increases are not guaranteed; employees must meet performance and eligibility criteria
• Employees with ratings of 1 are generally ineligible for a merit increase except as required by law or to meet minimum wage changes
• Employees within <Number> months of hire or with recent salary action may be prorated or ineligible per local policy

Sample Merit Matrix (Illustrative)

Compa-Ratio	Rating 5	Rating 4	Rating 3	Rating 2	Rating 1
Below 80%	<Percentage Range> (e.g., 7%–9%)	<Percentage Range> (e.g., 5%–7%)	<Percentage Range> (e.g., 3%–5%)	<Percentage Range> (e.g., 0%–2%)	0%
80%–95%	<Percentage Range> (e.g., 6%–8%)	<Percentage Range> (e.g., 4%–6%)	<Percentage Range> (e.g., 2%–4%)	<Percentage Range> (e.g., 0%–2%)	0%
95%–105%	<Percentage Range> (e.g., 5%–7%)	<Percentage Range> (e.g., 3%–5%)	<Percentage Range> (e.g., 2%–3%)	<Percentage Range> (e.g., 0%–1%)	0%
105%–120%	<Percentage Range> (e.g., 3%–5%)	<Percentage Range> (e.g., 2%–3%)	<Percentage Range> (e.g., 1%–2%)	0%	0%
Above 120%	Lump sum <Percentage Range> (e.g., 1%–3%)	Lump sum <Percentage Range> (e.g., 0%–2%)	0% or lump sum <Percentage>	0%	0%

Merit Administration Rules

• Employees above range maximum may receive lump sum in lieu of base increase
• Minimum increases may be set for meaningful differentiation (e.g., floor of <Percentage>)
• HR may approve exceptions based on critical skills, retention risk, or inequities with documented justification

Promotions and Career Progression

• Promotions require demonstrated sustained performance at the next level and position change to a higher grade
• Typical promotional increase: <Percentage Range> (e.g., 8%–12%) or movement to at least <Percentage> of new range midpoint
• Off-cycle promotions permitted with HR and Finance approval; effective on the nearest payroll after approval

Market Adjustments and Equity Corrections

• Triggered by significant market movement, internal equity concerns, or pay equity analyses
• Adjustments may occur outside the annual cycle and are distinct from merit increases
• Pay equity audits performed at least annually and after major cyclical actions

Short-Term Incentive (STI)

Eligibility

• Employees in grades <Grades/Levels> who are not on sales incentive plans
• Hires on or before <Date> with at least <Number> months of service during the plan year
• Employees on performance improvement plans may be ineligible or limited

Target Incentive Opportunities

Career Level	Target as % of Base Salary
Individual Contributor	<Percentage> (e.g., 5%–10%)
Manager	<Percentage> (e.g., 10%–15%)
Senior Manager/Director	<Percentage> (e.g., 15%–25%)
VP and Above	<Percentage> (e.g., 25%–50%)

Plan Measures and Weighting

• Company performance: <Percentage> weight (e.g., 50%) measured by <Metric> (e.g., Revenue, EBITDA)
• Business unit/function performance: <Percentage> weight (e.g., 30%) measured by <Metric>
• Individual performance: <Percentage> weight (e.g., 20%) based on year-end rating and goal achievement

Funding Mechanics

• Corporate funding pool based on achievement versus threshold, target, and maximum
• Typical payout curve (illustrative): 50% at threshold, 100% at target, 200% at maximum
• Negative discretion may be applied by <Approving Body> for risk, conduct, or compliance concerns

Example Funding Table (Illustrative)

Company Performance vs Target	Payout Factor
Below Threshold (e.g., <80% of target>)	0%
Threshold (e.g., 80% of target)	50%
Target (100% of target)	100%
Maximum (e.g., 120%+ of target)	200%

Individual Payout Calculation

1. Determine base salary earned during the plan year (prorated for unpaid leaves as required by local law)
2. Multiply by target incentive % based on career level
3. Multiply by company funding factor
4. Multiply by business unit factor (if applicable)
5. Multiply by individual performance modifier using rating-based scale
6. Apply any approved discretion within plan rules and legal limitations

Individual Performance Modifier (Illustrative)

Rating	Modifier
5 Exceptional	<Percentage> (e.g., 150%)
4 Exceeds	<Percentage> (e.g., 120%)
3 Achieves	<Percentage> (e.g., 100%)
2 Partially Achieves	<Percentage> (e.g., 50%–80%)
1 Does Not Achieve	0%

Example Calculation (Illustrative)

• Base salary: <Amount> (e.g., 80,000)
• Target incentive: <Percentage> (e.g., 10%)
• Company factor: <Percentage> (e.g., 110%)
• Business unit factor: <Percentage> (e.g., 95%)
• Individual modifier: <Percentage> (e.g., 120%)
• Payout = 80,000 x 10% x 110% x 95% x 120% = <Amount> (e.g., 10,032)

Proration, Eligibility Changes, and Leaves

• Mid-year hires pro-rated based on full months of participation
• Job changes adjust target % prospectively from effective date
• Paid and unpaid leaves prorated per local law and plan rules

Clawback and Malus

• Awards may be reduced, canceled, or recouped for misconduct, material misstatement, or breach of restrictive covenants subject to <Country> law
• Clawback policy approved by <Approving Body> applies to covered employees

Long-Term Incentives (LTI)

Purpose and Philosophy

• Align leaders and critical talent with long-term shareholder/stakeholder value
• Drive retention and ownership mindset

Eligibility

• Leadership levels <Levels> and critical roles designated by <Role/Committee>
• Minimum service requirement of <Number> months prior to grant date, unless waived

Vehicles and Mix (Illustrative)

Vehicle	Typical Weight	Purpose
RSUs	<Percentage> (e.g., 60%)	Retention, alignment with stock price
PSUs	<Percentage> (e.g., 40%)	Performance against multi-year goals (e.g., TSR, Revenue CAGR)
Stock Options or Cash LTI	<Percentage> (e.g., 0%–20% as applicable)	Leverage and growth alignment or for non-equity eligible entities

Grant Sizing Methodology

• Market-based target value: Grade-based target value of <Amount> or <Percentage> of base salary (e.g., 15%–50%)
• Conversion to units: Divide target value by <Price/Value> (e.g., 30-day average closing price) as of grant date
• Rounding: Round to nearest <Unit>

Performance Metrics for PSUs (Illustrative)

• Relative TSR vs. <Index/Peer Group>
• Cumulative Free Cash Flow, Adjusted EBITDA margin, or Strategic KPIs
• Payout range typically 0%–200% of target, with non-linear curves and absolute gates

Vesting, Forfeiture, and Termination

• Standard vesting: RSUs vest over <Number> years annually; PSUs cliff vest at <Number> years subject to certification
• Termination: Pro-rata vesting for retirement-eligible or involuntary without cause per plan; forfeiture for voluntary resignation or termination for cause
• Change in control: Double-trigger vesting per <Plan/Policy> (if applicable)
• Tax withholding and mobility: Apply <Country> tax rules and track multi-jurisdictional taxation

Legal and Regulatory Considerations

• Equity plans subject to securities, tax, and regulatory filings by jurisdiction; consult Legal and Tax
• Works council and labor consultation requirements apply in <Country> where relevant

Recognition Programs

• Purpose: Timely, visible reinforcement of exceptional contributions outside the annual cycle
• Vehicles: Spot awards, on-the-spot gift cards, project awards
• Funding: Annual pool of <Amount> managed by HR and allocated to business units
• Typical award values: <Amount Range> (e.g., 100–1,000) with tiered approval thresholds
• Nominations: Simple criteria aligned to values and business impact; quarterly review
• Tax treatment: Processed through payroll and taxed per local laws

Differentiation and Pay Equity

• Target distribution is not a forced ranking, but teams should demonstrate meaningful differentiation between top, solid, and low performers
• HR conducts adverse impact, pay equity, and outlier analyses pre- and post-cycle
• Managers must document rationale for all out-of-guideline decisions
• Equity considerations include base pay relative to peers, pay range penetration, time in role, and recent salary actions

Budgeting and Financial Controls

• Annual comp planning budgets set jointly by Finance and Total Rewards
• STI accrual modeled quarterly based on performance forecasts and accounting rules
• LTI expense recognized per accounting standards in <Country>; forecast using expected forfeiture rates
• Approval thresholds:
  • Up to <Amount> or within guidelines: Manager approval with HR review
  • <Amount> to <Amount> or above guidelines: Director/HRBP approval
  • Above <Amount> or significant exceptions: Executive and Finance approval
• Audit trail maintained in HRIS with change logs and approver records

Eligibility, Waiting Periods, and Exclusions

• New hires: Eligible for merit with <Number> months of service by <Date>; may be eligible for pro-rated STI
• Leaves of absence: Merit and STI prorated per policy and law; ensure parity and compliance
• Performance management exclusions: Ratings of 1 are ineligible for STI and merit unless required by law or to correct pay equity issues

Implementation Guidelines

Annual Cycle Execution

1. Confirm salary structures and target incentive tables; update HRIS configuration
2. Load performance ratings and eligibility flags; lock on <Date>
3. Publish budgets to managers; enable modeling with guardrails
4. Run calibration sessions; adjust recommendations; flag exceptions
5. Secure Finance and executive approvals; finalize awards and salary changes
6. Communicate outcomes to managers and employees; process payroll and bonus payments

Systems and Data Controls

• HRIS configuration includes range min/mid/max, compa-ratio calculations, and budget constraints
• Single source of truth for employee data; nightly integrations with payroll and finance
• Data validations for missing ratings, out-of-range recommendations, and duplicate records

Manager Enablement and Training

• Training modules on pay-for-performance principles, avoiding bias, and effective pay conversations
• Tools provided:
  • Merit matrix and STI cheat sheets
  • Sample scripts for tough conversations
  • Total compensation statements for eligible employees
• Office hours and help desk support during planning window

Change Management and Employee Experience

• Communication sequencing: leadership message, manager toolkit, employee FAQs
• Reinforce the link between goals, performance, and rewards
• Provide transparent explanations of factors impacting pay outcomes

Compliance, Legal, and Risk

• Compliance with pay transparency, equal pay, and wage-hour laws in <Country> and applicable jurisdictions
• Adhere to minimum wage increases and statutory bonus provisions where required
• Anti-retaliation and non-discrimination protections apply; training provided to managers
• Works council consultation and filings in <Country> when changes materially impact terms and conditions
• Clawback policy and codes of conduct govern misconduct and ethics violations
• Data privacy: Compensation data handled per <Country> privacy law and internal data handling standards

Monitoring, Metrics, and Analytics

• Key metrics:
  • Merit spend vs. budget, spread by rating and compa-ratio
  • STI payout distribution by demographic segment and business unit
  • Internal equity gaps and progress over time
  • Retention risk among top performers and critical roles
  • Pay vs. performance correlation at individual and business unit levels
• Quarterly analytics review by Total Rewards with recommendations for adjustments
• Annual program effectiveness survey for managers and employees

Documentation, Recordkeeping, and Audit

• Maintain plan documents, approvals, and payroll files for <Number> years or as required by local law
• Archive calibration notes and exception justifications
• Provide audit trail of approvals and system changes
• Secure storage with access limited to authorized HR, Finance, Legal, and Audit personnel

Review and Approval Process

1. Total Rewards drafts updates to this framework and supporting plan documents by <Date>
2. Legal and Finance review for compliance and financial impact by <Date>
3. Executive Team reviews and endorses material changes by <Date>
4. Compensation Committee (if applicable) approves by <Date>
5. HR publishes and communicates changes by <Date>
6. Effective date set to <Date> unless otherwise specified

Appendices and Examples

Example Merit and STI Decision Tree (Illustrative)

1. Confirm eligibility and performance rating
2. Review compa-ratio and market position
3. Apply merit matrix within budget; consider equity corrections if needed
4. Determine STI payout based on funding and individual modifier
5. Review total compensation impact and internal equity
6. Document rationale and obtain approvals

Sample Annual Calendar (Illustrative)

Month	Activity
January	Finalize prior-year STI results, initiate year-end performance reviews
February	Calibration, budget publication, manager training
March	Compensation planning, approvals, payroll processing
April–June	LTI grants, goal setting, mid-year market reviews
July–September	Recognition campaigns, equity audits, market data refresh
October–December	Planning for next cycle, legal reviews, system readiness

Example Communications Artifacts

• Manager talking points
• Employee FAQs
• Total compensation statements
• Intranet pages with program overviews and timelines

Glossary of Terms and Definitions

• Base Pay: Fixed compensation paid for performing job duties
• Compa-Ratio: Employee salary divided by the midpoint of the salary range
• Differentiation: Degree to which pay outcomes vary with performance
• Gate/Threshold: Minimum performance required to earn any incentive payout
• LTI: Long-Term Incentive, typically equity or deferred cash over multiple years
• Merit Increase: Annual base salary adjustment linked to performance and market movement
• Modifier: Percentage factor adjusting incentive payout based on individual rating
• PSU: Performance Share Unit, equity that vests based on multi-year performance
• RSU: Restricted Stock Unit, equity that vests over time
• Range Penetration: Position of salary within the pay range (min to max)
• STI: Short-Term Incentive, annual cash bonus
• Target Opportunity: Incentive as a percentage of base salary at expected performance
• TSR: Total Shareholder Return relative to peers or an index

Communication Section: How Pay-for-Performance Works at <Company Name>

Welcome to our overview of how rewards align with your performance at <Company Name>. Our goal is simple: when the company succeeds and you deliver strong results in ways that reflect our values, your compensation reflects that success.

What this means for you

• Your base salary grows with your skills, performance, and market movement. Each year, your manager considers your results, how you achieved them, and where your current pay sits within your salary range.
• You may be eligible for an annual bonus. Company and team results set the size of the bonus pool, and your individual results adjust your payout up or down.
• If you are eligible for long-term incentives, you can share in the value you help create over several years through equity or cash awards.

How decisions are made

• Goals: At the start of the year, you and your manager set clear, measurable goals that connect to our business priorities. We check in mid-year and at year-end.
• Performance: We use a simple rating scale to summarize results and behaviors. Leaders calibrate ratings across teams to keep decisions fair and consistent.
• Pay outcomes: We use guidelines to help managers make fair decisions within budget. High performance leads to higher merit increases and bonus payouts. If you are paid above your salary range, you may receive a one-time lump-sum award instead of a base increase.

When things happen

• Early in the year, we complete performance reviews and calibrations.
• Shortly after, merit increases and bonuses are communicated. Your manager will share a total rewards summary so you can see the full picture.
• Recognition awards can happen at any time for exceptional contributions.

What affects your bonus

• Company performance: We set goals for the business each year. If we meet or exceed them, the bonus pool grows; if we fall short, the pool is smaller.
• Team or function results: Some groups have measures tied to their specific outcomes.
• Your individual performance: Strong results and behaviors aligned with our values increase your bonus payout. Low performance may reduce or eliminate it.

If you change roles or take leave

• Changes in role, level, or eligibility are handled fairly and, when needed, prorated under plan rules and local law. Your HR partner can answer questions specific to your situation.

Our commitment to fairness

• We analyze outcomes to ensure pay decisions are equitable across employees and compliant with the law. If we find issues, we correct them.
• We train managers to make good decisions and have transparent conversations with you.

What you can expect from your manager

• Clear goals and ongoing feedback
• A timely, respectful pay conversation that explains how your performance and market factors influenced outcomes
• Guidance on how to grow your impact and career

Where to go for help

• Talk with your manager first. They can explain your goals, performance, and pay outcomes.
• Reach out to HR at <Contact Email> with questions about eligibility, guidelines, or policies.
• Visit the intranet page at <URL> for timelines, FAQs, and examples.

Thank you for your contributions to <Company Name>. Your work matters, and this framework helps ensure we recognize and reward the results and behaviors that move us forward together.

Important Notices

• Bonuses and equity are not guaranteed and are awarded at the company’s discretion under the plan rules.
• All programs are subject to change. We will communicate material updates in advance.
• Nothing in this communication changes your at-will employment or creates a contract where not permitted by law.

---

Document Information:

• Document Type: Pay-for-Performance Framework
• Category: Foundational & Strategic
• Generated: August 22, 2025
• Status: Sample Template
• Next Review: <Insert Review Date>

Usage Instructions:

1. Replace all text in angle brackets < > with your company-specific information
2. Review all sections for applicability to your organization
3. Customize content to reflect your company's policies and local regulations
4. Have legal and HR leadership review before implementation
5. Update document header with your company's version control information
6. At bottom of the document you find a short example on how the content could be communicated to end-users, for instance employees.

This sample document is provided for reference only and should be customized to meet your organization's specific needs and local legal requirements.