They communicate more often and more openly about the pay and rewards available in return for strong individual contributions. Base Pay Base pay should not be used as a hiring lure, or as a means of retention, but as a way to pay people gradual increases as they develop and grow within the company. Keeping annual salary on track with overall performance also prevents a person's paycheck from getting ahead of his or her true value. We do a really unfair thing to people when pay gets ahead of value. This type of compensation is agile and versatile.
Managers can do a lot with it.
A good example is the American Water Works Association, in Denver. It created an annual bonus system that pays each of its 160 employees if the company meets specific goals. We set objectives for the year, and earmark 2 percent of our salary budget for rewards. If we meet our budget, we'll spend one-third of our reward budget. If we exceed our internal goals, we get to spend another third, and if we exceed our external goals, we get to distribute the entire pot.