“We Have a Pay-For-Performance Program” Not!

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Aug 13, 2018

My business career has spanned a long time and working from both sides of the desk. First as a compensation practitioner filling out survey questionnaires and working my way up the ladder, and then (much) later as a global compensation consultant. In my experience, I have NEVER come across an employer or a client who didn’t loudly proclaim that, “Yes, we have a pay-for-performance” program.

So, I would ask them, “What percentage of your employees have received a merit increase in the past year?”

The answer I’d receive, and always given with a straight face, was every time in the high 90’s. In other words, everyone but those about to be fired would receive a pay increase. Is that your definition of an employer paying its employees based on their job performance?

It isn’t mine.

Try this instead: When you have a limited amount of merit increase money available you make sure that your higher performers are properly rewarded for their contributions. Those reward funds that remain are then distributed to those delivering lesser performance, in descending amounts, based on degrees of individual contribution.

Now, here’s the hard part. Some employees who are performing “OK,” or whatever your terminology of Joe Average is in your organization, should not receive a merit pay increase. That’s right, some average employees shouldn’t receive an increase because you don’t have enough money to spread around like peanut butter  There isn’t enough for everybody.

But maybe some of those Joe Averages will get mad? Maybe some will quit. And maybe that’s OK if that’s what it takes to enable you to reward and motivate those who’re making the greatest individual contribution to your organization.

Nay sayers revolt

“Off with their heads!” will scream advocates of the status quo. “You can’t do that!” will shout those who believe everyone deserves to get an annual raise. “How unfair!” will complain those who champion rewarding the average among your employees.

But look past the emotional rhetoric to consider what you should be paying for.

Job performance is not a commodity with a fixed value, like groceries, movie tickets or a pair of shoes. Its value can be shown as a sliding scale, with those providing higher levels of performance deserving more, and those providing lower levels of performance deserving less, or even none. The kicker is that you don’t have an endless amount of money to pass around. So, you had better first take care of those who are taking care of you.

The high performer reality

I’ll be the first to admit that my idea won’t be acceptable to most organizations. Many leaders and even some compensation practitioners believe in the equivalent of a silent social contract, where if an employee performs well enough to keep their job they should get something for their efforts at the end of a performance measurement period.

Is that what you believe? Do you also subscribe to the excuses that usually follow, when there’s not enough reward money to retain Bob the Superstar? When the difference in reward between levels of performance is so narrow that the higher performers start to think, “Why bother?”

Is that how your reward program is designed?

Higher performing employees will always have an option, in that eventually the phone will ring, and a recruiter will say, “Come to work for us. You’re a high performer and we’ll take care of you.”

Have a care that your pay-for-performance program doesn’t focus too much on rewarding Joe Average. Because that usually means that you’re pushing Bob the Superstar away. Take care of Bob first, not as an afterthought with whatever monies you have left.

This article was originally published on Compensation Cafe.