Pay-For-Performance: The Debate Continues

Friday, May, 04 2012

It seems odd that after several decades we are still having discussions around paying employees for performance and not for just showing up for work every day. In these times when virtually no organization can afford even a hint of waste, paying for work that adds value appears to be a given axiom. Yet Brooke Green, a principal at the Hay Group, and speaking during a webinar sponsored by HRHero/BLR outlined what is and what is not Pay-For-Performance. Green is quoted in the account of the webinar as referring to pay for performance as “the hot new approach to compensation”. In fact pay for performance has been in use for a very long time.

Writing in the journal Human Resource Planning in 1996, authors Christopher M. Lowery, M.M. Petty, and James W. Thompson, point out that the issues surrounding pay-for-performance in 1996 where the same then as they were 25 years earlier in 1970. The article "Assessing the Merit of Merit Pay: Employee Reactions to Performance-Based Pay" points out that most employees would prefer to be paid based on their actual job performance as opposed to some arbitrary measure. At issue was not the concept of paying for performance, rather it was how the concept was implemented. At one point in my career I worked on designing and installing an employee performance system based on Behavioral Anchored Rating Scales (BARS) for a large public employer. Great strides were taken to ensure that its statistical reliability and validity were sound. Unfortunately, once implemented, supervisors attempted to rate the majority of their employees as outstanding and in doing so employees became “meets”.

Steve Bruce, writing for the webinar’s host, HRHero/BLR, positioned the question: “Is pay-for-performance the right compensation philosophy for your company?” Oddly enough, the answer for some employers is “No”. You may ask how that could be possible. If the answer is “No”, that means that a company should feel good about rewarding employees for adding no value to their organization. The answer is that some organizations are not willing to make the tough calls that some employees should receive no increase while others should receive the maximum increase. Many supervisors, well meaning supervisors at that, cannot make those tough calls. This inability to be tough seems at odds when the same organization is able to fire an underperforming vendor, close a sub-par factory or discontinue an out-of-date product.

What is required for an organization to move towards paying employees for their individual performance and not simply “punch‘in”? It takes a culture in which performance can be and is recognized. It requires measureable goal setting, you cannot manage, i.e., reward what you cannot measure. It takes creditable communications; employees have to believe their performance will be rewarded. After years of a lack of creditability, many employees can become jaded towards the next perceived management fade.