Pay for Performance

In my past two articles, I gave you my views about the risks of using performance appraisals to administer such things as promotion, feedback, communications, training, and pay.� Of all of these proffered reasons to use performance appraisals, pay is the big one.� This is obviously a tough issue.� We are steeped in the Skinnerian notion that "if you do this, you'll get that."� If you perform the trick or job, you will get a goodie or reward.�

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In a recent contribution to the Let It Out section of the Indianapolis Star, an anonymous person said, "I have a solution to the problem of professional basketball players who can't make their free throws: Pay each player a base salary of $100,000 and $100 for each free throw, $200 for each basket and $300 for each three-pointer.� This would put an end to multimillion-dollar teams winning or losing by one or two points."� The logic of how this scheme would change the final outcome escapes me, but the idea of paying for performance hit me right between the eyes.

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Unlike in normal everyday jobs, where the output or performance isn't so clear or immediate, basketball is easy to add up the performance.� But think about the harm you would bring to the team if all you did was add up points made in order to determine pay -like piece work.� You say, "Sure we can't just reward baskets, we will pay for assists, rebounds, blocks and autographs.� And we will subtract pay for fouls, walking and bad throw-ins."� Obviously this would be absurd - not a way to have a winning team.� Contrast this scenario to a normal work situation where we don't have statisticians watching every move of every employee.� And yet we think that we can once or twice a year sit down and evaluate how well some one did over the last time period and then adjust their pay accordingly.� This too is rather absurd.

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So what is the solution?� Here are my suggestions.�

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1.� If you insist on doing performance appraisals, divorce them from pay.� It is as simple and as difficult as that.� Make sure that any pay increase comes significantly before or after the performance appraisal.

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2.� Treat pay increases as an investment in keeping the employee for another year, not as a reward for what was done in the past year.

3.� Pay people well.� This gives people dignity, allows them to raise a family and to be an active participant in the life of the community.� And of course, running a business in a manner that allows generous pay is a reflection on management's ability.

4.� Pay people in a manner that takes their minds off of pay -ranges, percentages, limits, rankings, etc.

5.� Pay people well enough to attract new employees and to retain existing ones.

6.� If you choose to share profits, do it equitably and with little fanfare.� Do not promise a bonus for certain target profits.� In time this practice will extinguish "the stretch" for the goal, and it will cause people to make bad decisions.

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The bottom line for me is: avoid all the hype and the bribes associated with pay.� Pay people fairly and as well as you can.� Then give them good jobs to do, and they will do a good job.