"My husband once worked for a company that had a merit pay system. After six months they told him he owned them money."
Phyllis Diller
Personally I like performance based compensation. The company makes money, everyone who works there should as well and when it doesn't, all oxes must be gored.
Of course for this to work all employees must plan for the inevitable ups and downs that affects every company. Not likely; even management doesn't always do a good job of that. And there is the little problem of senior managerial greed
Still, I like the concept of we all eat or starve together.
What about you?
Of course for this to work all employees must plan for the inevitable ups and downs that affects every company. Not likely; even management doesn't always do a good job of that. And there is the little problem of senior managerial greed
Still, I like the concept of we all eat or starve together.
What about you?
You're right about it being a concept; one that will never work. Greed immediately gets in the way as well as the inability of most to plan for hard times. And then there is the issue of deciding who does and does not deserve extra compensation based on performance. "I do, you don't" will quickly be the norm.
ReplyDeleteforget about greed for a second...i'm not entirely convinced that this is difficult to manage. if targets to achieve an incentive bonus are established and agreed to in advance, why would it be difficult to decide who does and does deserve extra compensation? i think the key question is what you mean by pay for performance. performance of the entire comapny? a specific division?
ReplyDeletei would argue that a true pay for performance system is one that ties your incentive to your direct ability (or inability) to affect the outcome. so if i'm running division x and it's wildly profitable, i should of course be rewarded for that - regardless of how division y and z within the same company performs.
having said that, i of course understand that to promote teamwork, some companies will base an incentive on overall company performance. while i think this is good in principle, what happens if a particular division is consistently unprofitable and thereby impacts other managers' ability to earn an incentive? if this situation is left unchecked, your strong managers will end up being DIS-incentivized since their individual strong contributions are being negated.
Anonymous is right about the need to establish, specific, measurable targets in advance. Of course that will still leave room for others to argue about how critical those targets were but not about whether they were achieved.
ReplyDeleteAs to the part about interweaving the fates of divisions within a company. I can see where that would be beneficial particularly if the divisions are complementary to each other. If one continually misses the mark, senior management must make changes that go way beyond individual compensation, just as the performing division management must weed out under performing individuals, so too must overall management make wholesale changes in a division that is not getting the job done.
Any of us who've ever worked a commission job, say retail sales for example, will agree that "performance-based compensation" is the way to make money--usually BIG money! Making money becomes the motivator. Like my old boss would say: "You want a raise, sell more!" And sell more we did. Sure there was pressure, but it kept you on your toes. There are up cycles and the inevitable down cycles; this forces you to plan and manage your budget. I never took the "draw" that was available--never had to. Working on weekends, I'd come in Saturday morning and tell myself that if I didn't put $350 in my pocket by noon, then it wasn't worth giving up my Saturday. I usually did and more by the end of the day (not bad for almost 30 years ago).
ReplyDeleteDuring major sales, when closing the sale was quick and easy, to make sure that all our fellow salespeople were covered, we "pooled" our sales and split our commissions evenly. This introduced teamwork and none of us felt as if we were "carrying" another salesperson. Knowing this, we worked with management to eliminate the weak salespeople.