I used to love the concept of “pay for performance.” It seemed so concrete! So ideally suited to getting great results! So objective!
Guess what? It’s not.
There are several reasons rewarding individuals through pay for performance isn’t the wonderful and unbiased system many of us were led to believe. Let’s dig in.If your organization still links individual performance to pay, stop it. There are lots of reasons to ditch pay for performance, and it's not as effective as you think. Click To Tweet
Performance standards are defined by the dominant culture
Okay, so why is that a problem? Well, virtually all organizations’ dominant cultures have been defined by straight white guys. They’re the default setting. The way of the white dude is the way the organization gets stuff done. From written communications to leadership to presentations to networking to how we do our work, the “done thing” has been defined – and reinforced – by the culture.
(And we should be questioning that. Every which way. But that’s a post for another day.)
This process edges out excellence as defined by non-dominant groups. Collaboration, teamwork, and inclusivity tend not to be reinforced and rewarded by the dominant culture (because they require the dominant culture to relinquish power).
“Oh, but Kate! What about sports and teamwork – that’s totally in the wheelhouse of patriarchy and stuff!” Think for a moment about how much of the language of sport is based in domination and power. That’s the toxic part. The “we only succeed as a team” part of sports works great, but it’s not a part of individual pay for performance, either.
Performance standards differ by group
Pay for performance programs are set up based on the premise that the same performance will have the same outcome for everyone. That’s simply not true.
The very same behaviors that are lauded and rewarded in the dominant group can be penalized in marginalized groups. We’ve all seen it: a forceful statement by a cis-het white man is seen as powerful and decisive; the same behavior from a woman is viewed as bitchy; the same behavior from a person of color is perceived as strident, arrogant, and/or presumptuous.
The narrower definitions of good performance for those who are marginalized by the existing systems make it more challenging for them to be successful. And, of course, we see that come to life with lower representation at higher levels of organizations.
The myth of the individual contributor
I know folks will want to fight me on this, but nobody (NOBODY!) in an organization succeeds in a vacuum. That singularly brilliant designer? They may create mad-cool products, but there’s an entire team that enables that brilliance, from administrative help, to technical support, to materials scientists, to the very organizational systems they work in, to the sources of inspiration for the design (and don’t even get me started on how people of color are marginalized in that process).
Would these “superstar” contributors be as wildly successful if they operated independently? Perhaps. But I believe that far fewer performances (good or bad) can be attributed solely to the talents and contributions of a single individual.
Rater and inter-rater reliability
It’s hard to rate performance. Managers don’t see everything employees do as they’re performing their jobs (and many times, they don’t see much at all). And performance appraisals typically rely on subjective measures.
Performance management comes down to people rating people, and each manager brings their own biases into the mix. So, what one manager might assess as “excellent,” another might view as “okay” or even “un-ladylike.” (Okay, had to throw that last bit in since it actually came up in one of my own appraisals years ago!).
Merit increase differences aren’t typically very different
Companies have used small merit budgets (at least in the US and Europe) for years to address increased living expenses AND “reward individual performance.” Please.
There’s a reason managers shy away from differentiating merit increases: it’s really hard to tell employees their increase doesn’t even match inflation. So, they don’t. And they subsequently don’t have enough budget left over to super-size rewards for high performers. For the great majority of companies and individuals, it simply doesn’t work.
But what about…
When I talk with my clients about ditching pay for performance, I get questions:
- Won’t everyone just stop working hard if their efforts aren’t rewarded?
- How can I manage poor performers out of the organization if we don’t do pay for performance?
- Will my top performers leave the company if they don’t get big increases every year?
First, no, they won’t. Pretty much everyone comes to work every day wanting to do a good job. Even faced with an oppressive system. It’s a common longing. But shifting from an individual performance focus to a team one can be liberating and exciting for team members.
Second, just because you don’t pay based on performance doesn’t mean you can’t manage it. Just make sure you’re aware of individual performance measurement’s inherent biases before you make any career-changing decisions based on it.
Last, let’s be clear: org-designated top performers already get more interesting assignments, better/cooler projects, more promotions, greater visibility, and a whole host of other things that result in greater job satisfaction (and bigger rewards), even when their annual increase or bonus isn’t tied to their individual performance. If that’s not enough for these folks, sure, they might leave. I’d argue that a culture that glorifies individual performance causes more great folks to exit companies than focusing on team performance does, though.
What can you do instead of pay for performance?
Let’s say this post has convinced you to move away from pay for performance (yay!). What alternatives are there?
- Development focus. What would it look like for your organization to focus on developing and growing capabilities rather than managing performance to standards? The leaders and organizations I’ve seen taking this approach get great results, and employees are far more engaged.
- COLA and step increases. Yeah, these sound old school. But when you weigh the benefits, one-size-fits-all solutions can work well. Tons less effort from managers, less administrative effort, and less focus on the flawed measure of individual performance.
- Incentives based on organization or large team performance. Everybody in the pool! Help folks identify with the larger group so they know what the group goals are…and how their own behavior can contribute to the success of the organization.
Want to learn more about how to make your rewards programs less oppressive? Check out this blog post.