Pay for Performance? For Pirates, not Performers.

Thanks for setting this topic up for some discussion Sean.  I think there are a lot of really good questions around this issue and I will look forward to what Jason has to say about this topic.  There are also some other folks that I would love to hear from on this topic, and I am going to issue a few “call-outs” before I start scribbling my thoughts on the topic.

Because of the work that they do and because of their interesting perspective on things, I would really love to know what these folks think about this issue:

Charee Klimek @ChareeKlimek

Paul Hebert @incentintel

Jason Seiden @seiden

Bret Simmons @drbret

Susan Burns @TalentSynch

Anne Perschel @BizShrink

Love to hear from you whether you are a thumbs up or a thumbs down on pay for performance.

My personal opinions on pay for performance were largely shaped by two of my own previous work experiences.  The first was four years in the United States Marine Corps.  I did not get paid very much.  I had to work really hard.  I spent a lot of time away from my loved ones.  I was in harms way. At times the living conditions were pretty rough. And I loved it.  I was highly engaged and that had nothing to do with the compensation.  The lesson that I took from this experience was this…if you want people to be engaged in their work, give them work that matters and let them do it out loud and together and reward them together.

The second was one of my sales gigs, years ago.  This particular sales shop that I worked in was all about the money.  When you interviewed to work there, one of the most important questions they asked was “are you motivated by money?”  There were some sales people on this team that hung really big numbers up month in and month out…and with a couple of exceptions they were complete assholes.  They were assholes to each other to the rest of the team and even at times to customers.    And about once or twice a year one of them got caught doing something illegal or unethical and was fired.  Stealing sales, gaming the commission structure, fudging paperwork, etc.  The lesson that I took from this experience was this…regardless of what kind of team or organization you hope to build, if you hire pirates you are going to end up as the captain of a pirate ship.  If you hire people that are solely motivated by money, then you should not be surprised when they put their wallet ahead of your wallet or ahead of group performance, customer satisfaction, policy, etc.

I am not a fan of pay for performance.  I think it rarely has the benefits that are attributed to it and more often than not has negative consequences.  I think that organizations and managers are really very poor at understanding behavior; I think that they are even worse at accurately evaluating performance and worse yet at having candid, adult conversations with employees about performance.

Hire good people, give them the resources that they need, tell them the truth about everything and work relentlessly to get policy, busywork and yourself out of their way.  They will deliver for you, and when they do reward them as a team…and if you ask them, they will tell you how.



  1. I jumped back to read the foundational blog entry and all that is said there is right on the money…

    Set appropriate goals (controllable)
    Remove as much “subjective” stuff as possible
    Focus on behaviors not just outcomes
    Individual reward options

    All great stuff – and all stuff that is almost impossible to do right since they compete with each other. Can I have behavioral-based goals that are 100% objective? Doubtful. Can I really be fair if I can’t put an objective value on each behavior? Is collaboration more important (and therefore more valuable) than individual persistance? Which is worth more to the company?

    Setting up any pay for performance structue will have – with 100% certainty – problems. Either they are too objective focused which communicates success at all costs or it is too “subjectively” focused with communicates process over successful business performance. A catch-22 if there ever was one.

    Joe – you mention the Marines. They don’t have pay for performance – they have pay for service and pay for loyalty. The Marines are at one end of a continuum. They are the organization of believers and they effectively cultivate a culture where teamwork, loyalty, exclusivity, extremely high standards of performance are the currency in which you are paid. Marines don’t argue about who gets more money – but I’ll be there are conversations about who is more loyal, more likely to pull your butt out of the fire fight. It’s pay for performance but with a different currency. The currency in the Marines is social not transactional. I would submit – for the important stuff in life – this is the only currency that matters.

    Other companies – like the one you mentioned – put all it’s eggs in the transactional world. They are (whether they publicly state it or not) have decided that they worship at the altar of money. They get what they get. When outcomes are the only measurement criteria – the means justify the ends. Call Machiavelli – he’d like to work there. This currency – in periods of distress – is worthless.

    My point being – pay for performance can work when it is within the context of a culture that values human capabilities and has human criteria – sharing, loyalty, good manners, ethics, etc.

    Once those criteria are properly reinforced – then pay for performance has a shot.

    Caveat – the rewards for pay for performance cannot be too large. Big bonuses, big rewards – cause big problems. They overshadow the cultural issues mentioned.

    The main problem with pay for performance (and I separate that from short-term non-compensation based incentives) is that they become the minimum – the standard. It is hard to move back from pay for performance as people become income adjusted to the higher pay levels. This is a big problem if for some reason they can’t hit their goals in the future (especially if the goal isn’t in their direct behavioral control.)

    If I would make a recommendation for pay for performance it would be – make it short term, make if focus on changes in the environment (ie: new training, new marketing efforts, new sales tools, etc.) not on things you EXPECT to happen for the long-haul.

    Let pay for performance be a tool for moving behavior in new directions instead of reinforcing what you expect.

    I use this example a lot – you don’t reward children for being honest (ie: candy every time they tell the truth) but you do reward them when you’re teaching them learn to use the bathroom. But you don’t reward them for using the bathroom correctly after a certain age – it becomes the expected. But you might start rewarding them for checking in regularly when they learn to drive – until that behaviors becomes the expectation.

    Long-winded answer. But this is a big topic.

  2. Dan Pink’s book Drive challenges a lot of our assumptions about this topic, with research indicating that increased financial incentives caused a DECREASE in performance on tasks that required any level of complex thinking. I also saw research (can’t remember the cite, sorry) that teams that were rewarded collectively literally showed more communication among team members (measured by email traffic I think), than identical teams that were rewarded individually. And in my world, less communication is typically not helpful. Though I don’t know, if it caused people to NOT send me email…

  3. Joe, I strongly agree with your last paragraph. That’s management 101 to me.

    As you point out, the devil is in the details and even the best policies can have unintended consequences, especially when pay is involved.

    From personal experience, the only thing pay has consistently motivated me to do was to look for another job whenever I felt mine was not fair. Other than that, pay has never guided my hour to hour, day to day behavior at work.



  4. Joe – thanks for the invitation to comment. As always I am a fan of your very direct no-beating-around-the-bush approach. It save words and time.

    My view? There are many ways we get paid for our work. Salary and benefits are the price of entry and a lever companies to attract talent. If you want people to come to work you have to pay. So salary, whether it is for performance or attendance is used to hire and get people to show up every day. The question you ask is why people care enough to work hard and smart. That’s often about intrinsic rewards, such as being engaged, feeling their work is important and valued, or being part of a team on whom others rely.

  5. When I started my first real job, my salary was next to nothing. I made about half of what my peers at the time were making. Fast forward a year and a half: despite my never asking for a raise, my salary had nearly tripled.

    Pay for performance? No. More like, pay & performance.

    Not once did I ever work for the money. I worked because I believed in what I was doing, because I could become great at what I was doing, and because I had a path to get great. The money just came. In fact, it was when I started thinking about the money that I realized I didn’t like the job anymore and that I needed to change.

    This has become a pattern for me… and I’m not the only one. Here’s how Dan Pink summarizes motivation theory, a la RSAnimate:

    Money can be a great barometer of whether you’re in the right place or now… as in, if you’re thinking of it all the time, something’s amiss. In a service economy job, money amplifies what’s happening… but money is not, by itself, what’s happening.

  6. Joe (and Sean),

    Thanks for the invitation to contribute here. Hopefully this all makes sense because I’m rushing to get some sleep before daybreak.

    Here goes…

    Agree with Paul – big topic! Will try to be brief and I’ll tackle this from two perspectives: personal and client.

    Personal Opinion: Pay for performance does not work. Even with the best intentions and a thousand checks and balances in place. Over time, it will breed mistrust among team members, managers and leadership. It promotes favoritism for all the wrong reasons, unethical behavior gets rewarded, POOR performance is the 80/20, and the culture grows toxic where generally everyone is miserable and those that suffer the most are the customers.

    So unless a person is looking for a short-term gig that pays a high return and doesn’t care about the trail of bodies they leave behind, I would advise against it. Just my humble opinion.

    Personal Experience: I worked for several years on straight commission. No salary. No managed quotas, just a monthly mark. Miss the mark, owe the company money. Of course the culture was “very happy” but behind the scenes it was a war zone over territory, battles over splits and you always watched your own back. When someone quit, you could smell the blood because the sharks were already on the scene. …..Wow. This sounds horrible!

    Side note: great friends, still love them – it was not all this bad!

    But…I was lucky or smart – both. I held firm to my own purpose. Like you, the money didn’t matter nor did the working conditions because I was doing what I wanted to be doing and it came from the heart. It took laser-like focus to avoid negative influence and manipulation and I won’t lie, I got sucked in a few times. Finally, learned to say NO. It took a hell of a lot of discipline and I’m pretty proud of the fact that despite it all I was very successful, managed 7 of the 10 largest clients, lost only one major pitch that I can remember and had the highest client retention rate in the agency. I also left completely burned out and it took a long time to shake that stress.

    What works: Starting at the top, spell out the behaviors that leadership makes visible. Think. Speak and Act (on brand) consistently. Ensure the behaviors are grounded in the true mission, vision and values of the organization. If that’s changed or has become misguided, rediscover it and be disciplined to redirect behaviors to live up to the the values.

    Every person in the company is looking to leadership to set the example. If they’re not leading BY example, being honest and ethical in their decision making – even when times are tough – then the level of trust will never be where it needs to be.

    Put the customer and the employees in the center of the universe.

    For Managers and Employees: Connect positive behaviors that lead to business outcomes and are also tied back to company values. This is a vital. Employees must understand how they connect to the business strategy, they need to know how to live the values, they need to understand what expected and (beyond expected) behavior looks like – it’s all in the HOW.

    Most companies talk and reward the why. “We’re going to reward you.” Why? “You exceeded expectations this quarter.” Great!

    By the time that performance review is written, most managers can’t remember HOW that employee actually exceeded expectations, they just know they did, checked the box and hopefully they were thinking of the right person.

    So here’s where it gets tricky. Depending on the culture, incentives, gifts, and money can work and the best one do because they’re not extremely high priced bonuses that require analysts to determine the calculations.

    The advice here: Ask your employees what drives them. What their motivators are. Are they in line with the company mission and values? If so then create the rewards and recognition based on their inputs and the outcomes based on THEIR behaviors. Engagement isn’t about management – it’s about the employee. When employees can learn to share success with each other and openly recognize one another for doing great work. It’s positive peer pressure.

    Think about facebook. How often do you like something or comment on someones status because another person you respected did? We’re social creatures that follow our tribes around.

    By helping employees change the way they think about recognition (and management and leadership) you’re flipping the model.

    Non-monetary – intrinsic: There’s a lot of extra effort that goes into this. Leadership must again consistently instill the purpose, mission, vision and values of the organization. Give employees other benefits like “play time”, days off, dinner with the president.
    Hand written notes, face-to-face acknowledgement, public recognition.

    Final note: Leaders exist throughout the company, not just at the top. Find leaders who will help promote and peer-to-peer recognition. Show them how to lead by example.

    Share success stories of brand behavior whenever possible. Involve employees in doing so. Involve customers too.

    Track everything. Use the data to improve performance and adjust the program accordingly.

    Never make incentives a drive by effort. It’s either part of your culture or its not.

    OK. Alarms going off – sooo I need to go. Hope this makes sense when I read it again later!

    You guys rock and again – thanks for the invitation to comment.


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