Most organizations say they want to tie pay to results, but only a quarter believe they actually do it well, according to new research from a global HR advisory firm.
McLean & Company’s updated report, released last week, found that while 69 per cent of HR departments consider total employee compensation important to achieving business and HR goals, only 25 per cent rate themselves as very effective in that area. The firm drew on its Management & Governance Diagnostic data collected between 2023 and 2025.
Why the gap matters
The research links compensation satisfaction directly to employee behaviour. According to McLean & Company’s Engagement Survey data from 2022 to 2025:
- Retention: Employees satisfied with their total compensation are 1.8 times more likely to expect to stay with their organization in the next year.
- Engagement: Employees who believe they will be compensated fairly when they exceed performance expectations are 2.7 times more likely to be engaged.
“Pay for performance is never just about pay,” said Lexi Hambides, director of HR research and advisory services at McLean & Company. “It sends a powerful message about what the organization values, who it invests in, and how effort translates into opportunity. When that connection is clear, organizations see improvements in motivation, retention, and engagement.”
Common design failures
The report identifies several reasons pay-for-performance programs fall short. One-size-fits-all designs often fail to reflect an organization’s culture or financial situation. Budget limits can reduce meaningful differences in rewards between top and average performers, weakening the program’s motivational effect. Unclear performance objectives, weak data, and limited support from leadership further erode employee trust in the process.
Structure and philosophy
McLean & Company stresses that the choice between base pay and variable pay carries strategic weight. Base pay signals long-term investment in employees but reduces cost flexibility. Variable pay offers more agility but less predictability for workers. The report recommends HR leaders align that balance with their organization’s strategy, culture, and financial context.
The firm outlines a three-step framework to help HR departments clarify their compensation philosophy, connect rewards to strategic priorities, and build fairness and transparency into how programs are carried out.
