Businesses are tightening their belts and having to do more with less in today’s slow economy. More and more companies from grocery co-ops to major corporations are moving to a pay for performance raise schedule in hopes of:
- Increasing productivity
- Growing loyalty among their workforce
- Attracting and keeping the best possible talent
The employer benefits of a pay for performance raise schedule are logical, right?
Higher performers stay with the company, lower performers either get with the program or leave. It can increase productivity among individuals and increase competition for co-workers. The pay off is an increase of those high achieving people who work in teams, particularly when everybody gets the same bonus even if the workload wasn’t the same. Winning.
But is a pay for performance plan always in the best interest of the company, and you, the employee?
Thirteen separate units of Hewlett-Packard switched to a pay for performance plan back in the early 1990s, thinking it would attract and motivate people and that the performance standards would rise…and performance standards did rise for about six months. But then it fell apart. mmmKay. So, what happened?
High performing teams that had achieved their goals grew frustrated with factors out of their control that affected their work (such as shipping schedules) and also refused to admit people they felt were below their level, which lead to team disparities. Reduced mobility between teams lowered levels of learning and information sharing. And employees who came to expect the higher salary were angry when they couldn’t achieve it consistently. Not surprisingly, the pay for performance plan was dropped at all the units of HP within three years. Sounds like some professional sports teams, no?
In fact, pay for performance may actually hamper innovation, according toa research paper by Florian Ederer and Gustavo Manso. It concludes that if you need employees to be creative, you shouldn’t penalize them for failing. Interesting. Gets to culture — what do we encourage?
So, what are you to make of pay for performance plans? If you are a high achiever and self-motivated, then this type of pay schedule is definitely for you — especially if you work in sales or if your business is commission-oriented. Probably why sales teams continue to use this model with a general level of success.
What can you do?
You should get to know your potential company or current company’s pay structure well, both in order to know what goals you are aiming for and what dollar amounts are involved. This is also important so you know that it is an equitable program…you don’t want to risk being the target of favoritism accusations, resulting in morale problems. Another good rule of thumb, is to not depend on making the bonus every review period in order to pay your mortgage or other essential bills.
If you work in a field geared towards innovation that values creativity, then a conversation with your manager about how you can best take advantage of your pay for performance structure — without being penalized for taking imaginative risks — may benefit you.
Now, if you’re the guy who shows up just to punch the clock, do your time, and go home, you probably hate the idea of pay for performance. If that is the case, you may want to try to view pay for performance as an opportunity to show your skills and abilities in your job more clearly to your boss. With clearly stated goals and objectives tied to your bonuses, you can not only net more money, but it may also enhance your reputation at work — and that may just keep your options open if you ever want to change jobs.
What is your situation? Is your industry conducive to pay for performance? Are you motivated by money or something else?