You can pay for performance with bonuses

by on June 16, 2009 · 0 Comment POSTED IN: HR Info Center

Pay for performance works best when people have goals they know aligned with concrete metrics

When I say you can’t pay for performance with base salaries, I’m not talking about bonuses. You can pay for performance with bonuses. I don’t find it as often a point of contention. Again, when I talk to people about bonus systems and if they’ve got problems, it’s because they didn’t design them well or they got too cute. Be careful how you devise them. I would strongly encourage you to give normal, balanced market-base schemes. They’re not dramatic but, you know, they’re middle of the road.

Be careful. It’s really easy. You can incentivize pay for performance in one area and you got something totally different out the other end.

Don’t pay employees to develop themselves.
The reward for developing yourself is being developed. You don’t need to pay somebody to take a course unless taking that course makes them more valuable in the marketplace.

So, if they complete the degree, they’re probably more marketable than they were the day before they got the degree done. So, that’s not really paying for the degree or pay for performance, that’s paying for market. . I don’t like to incentivize people to develop themselves. They ought to get inherent value out of being developed.

Larger measures are better in pay for performance
I like this quote “When you ask for one thing but pay for something else, what do you think you’re going to get?” It’s pretty obvious. When you ask forteamwork and cooperation but you pay for individual superiority, guess what you get? A bunch of individuals who try to make it look like they’re working together as a team.

I would tell you that the bigger measures normally are better. When you’re doing bonuses, the more specific you get, the more, you know, the more personalized you get, the more likely that you’ll sub-optimize.

Concrete measures are normally better than – even though you made them up and they’re subjectively developed, they’re at least objectively, they’re objectively being count on and be careful about paying for superior individuals.

If you read Deming’s work on quality, he talks a lot about how you shoot yourself in the foot when you start making individuals to be the hero, when 80% of the results are really coming from the systems that they work within and it’s a collective thing. So, be careful about that.

I love profit sharing. I think, it’s a great way to go because you don’t have to pay it, unless you do better than par. And it gives everybody a reason to hope and wish and work to exceed par.

Edited remarks from the Rapid Learning Institute webinar “How to Drain the Drama from Salary Reviews: A Conversation Roadmap” by Gary Markle

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