Joe,
Like you, I appreciate that Sean and the Halogen Software folks teed up the topic of Pay for Performance for our discussion. It’s a big, ugly, hairy topic.
While I love that others have contributed to the conversation, it’s kind of BS that you invited a list of people who are clearly smarter than I am to share their insights on this topic before I could respond. At this point, there’s no way for me to sound smart by comparison in whatever I share as my thoughts on this topic. Ugh. Thanks a lot for that. I guess I have to respond anyway.
So, rather than my usual rambling prose, I’m going to just toss some bullet points out there that have been inspired by Sean’s post, your post and all comments from all of the other smarty pants you invited to the party. Here goes:
- Pay for performance isn’t about pay or performance. It’s like HR duct tape. You pull it out to try to apply a short term fix to a much more significant problem (crappy managers, low performance, etc.). Generally, it’s applied with the hope that the underlying problem will go away once this “duct tape” is applied.
- Pay for performance is about broken management. The consensus seems to be that it only works if we have good goals, good cultures, good coaching, good feedback, good measurement, good balance, good system, etc. If we had all of that stuff, we wouldn’t need pay for performance, people would just perform.
- Being money motivated isn’t bad. I, for one, am motivated by money. It’s not the only thing I’m motivated by, but it’s important to me. You can use the promise of money to motivate me. But, I’m equally motivated by a lot of other things. Everyone is. You don’t hire people who are solely motivated by money, but if you put them in a culture where the only incentive applied is money, you are going to get some crazy stuff happening.
- Joe, I wish the motivation of people was as easy as you make it sound. I think that your post is more about how to motivate a group of “Joe-like” humans than a randomly selected group of humans. Paul talked in his comments on your post about the fact that people are complex. Each person is motivated differently. That’s why only a select group of people make it in the Marines. It’s also why I hated working on group projects in school. It’s not as easy as simply applying a team/collaborative approach (not a bad idea, just not that simple).
- To get technical, one of the problems in most pay for performance plans is that it’s all about upside with minimal downside penalty. In most of these plans (aside from straight commission plans), if you perform at a high level, you make a bunch of money. But, if your performance sucks, you still earn enough to get by. In my opinion, if you are going to do it (which I think I’m generally against), you need to go full Darwin. You perform, you thrive; you don’t, you starve.
- I love Paul Hebert’s analogy to how we reward our children. That’s a great way to think about financial rewards in organizations. Use the money to incent new behaviors or get specific projects accomplished. However, I think this concept veers away from the traditional notion of pay for performance.
- Underlying this topic is the issue of compensation, one that is very complex on its own. In my experience, here’s how compensation works (very similar to Dan Pink via Jason Seiden in his comment), for people to be happy, they need to be paid just more than what they think they deserve. If you are paying them less than that, compensation will be an issue for them. When that happens, you are either underpaying that person or he/she has an inflated sense of their own value. Generally, these issues ultimately tie back to poor management again (expectation setting, communication, feedback, etc.).
Okay, I think that’s it from me. No solutions, just more questions. But, to be fair to Sean, he asked two key questions at the end of his post and I will provide my opinion on them here:
- Do pay for performance programs actually help motivate high performance? – It depends. Even if it’s a perfectly designed system/process, it’s only going to motivate those who respond to those kinds of incentives. With that being the case, it’s probably not a good idea to implement this approach unless you are okay with a large part of your population of employees being alienated or disengaged by the program.
- What do we need to do to make them effective? – Fix everything else that is broken about management in your company first. Then decide if you want to implement. Chances are that once you get through that effort, you won’t need pay for performance any longer.
Jason