The truth behind pay for performance

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

Pay for performance is the biggest piece of mythology in the field of compensation.

I’m talking specifically here about base salary treatment because I’m not going to say you can’t pay for performance when it comes to bonuses.
Bonuses do have an element of pay for performance in them, but I’d like to debunk this mythology that pay for performance really works.

Let’s talk about the big lie regarding pay for performance in more detail. Here’s what we tell people, “If you work hard and you do well, I’ll give you a good rating and you’ll get a big increase.” Very commonly, that’s the way we treat salary administration with our employees. But any of you out there listening have probably figured out that that statement right there, that’s a lie. That didn’t really work that way. In reality, you don’t pay for performance with base salaries. You can’t pay for performance with base salaries. And most importantly, you don’t want to.

Let’s just dive into the reality part of this conversation about pay for performance and let’s make it real clear. Think logically, where do salaries really come from. Where do salary adjustments really come from?If you can know one thing that before anything else and more than anything else would determine the size and scope of an individual’s personal salary treatment, what would it be?

The budget role in pay for performance.
In other words, do you have any money? In 2009, a whole bunch of companies figured out you don’t have any pie to pass around. That’s how you to think about raises, as pie. The question is, how big is your pie? And in 2009, a lot of you don’t even have any. Most of us this year are going to have to go tell our people we’re sitting on our wallets whether we got any money in them or not because it’s not prudent to put more money into fixed cost, which is payroll.

If you have no money in your budget, then why on earth would performance be a predictor of your pay? And by the way, please for goodness sake, don’t tell somebody they’re not getting an increase because of their bad performance or the company’s bad performance. It won’t go over very well.

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

Leave a Reply


Request a Free Demo

We'd love to show you how this industry-leading training system can help you develop your team. Please fill out this quick form or give us a call at 877-792-2172 to schedule your one-on-one demo with a Rapid Learning Specialist.