Back to the Basics

When it comes to pay for performance and fairness, the pivotal question seems to be this: If a high performer generates x% more value than an average performer, should the reward differential also be x% (or thereabouts)? 

It’s not a clear cut debate.  Opinions are diverse and in some cases seemingly contradictory, for example:

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The challenge is that practically everyone is at least partly right, with well-thought out arguments that resonate because… well, they’re true.  Even though they seem to be conflicting, each recommendation is valid in certain circumstances.  And each, while valid, is debatable.

For example, most people seem to agree that fairness is key.  But fairness is a multi-faceted concept when it comes to pay for performance.  On the one hand, there’s what the high performer feels is ‘due’ them, which is certainly relevant but only half the story. 

If John performs better than Jane and receives a higher performance rating, should he get a 20% increase while Jane only gets 2%?  It might look fair on paper if you can demonstrate that John actually added 18% more value than Jane but even if it were possible to do this accurately, it wouldn’t show Jane’s indirect contributions to John’s performance.  Nor would it feel fair to Jane, who also works hard.

My point is that ‘fair’ means different things to different people.

Once a young, ambitious person received a performance rating of ‘Exceeds Expectations’ with a salary increase of 2.2%.  Her manager told her that the average increase was something like 1.7%, which meant that the delta between her increase as a high performer and an average increase was about .5%. 

Not so much, right?  But funnily enough she didn’t immediately start looking for a new job.  For one thing, she liked her current job, her manager and her colleagues.  For another thing, although the delta wasn’t big, it was still more, which was somehow enough to satisfy her sense of fairness.  And finally, she didn’t feel like her increase only counted if everyone else got nothing.

Would she have preferred a 20% merit increase?  Well, sure.  But that’s not what mattered.

Her relationship with her manager and colleagues mattered.  The way the performance evaluation was conducted and communicated mattered.  Feeling appreciated for her contributions mattered.  She also liked her company, was comfortable in her role and had a lot of flexibility about how, when and where her work got done.

Everything else was just details.

If we get the basics right, the details don't matter so much.

Laura Schroeder is a Compensation Strategist at Workday, headquartered in Pleasanton, CA.  She has more than twelve years of experience designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and is currently pursuing a certificate in Strategic Human Resources Practices at Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing and spending time with friends and family.

Comments

[Ginger]

Great post. Most top performers I've had the privilege to manage get most of their job satisfaction by being given opportunities to learn / grow in something they're interested in. They inherently are hungry to learn and achieve more. Find out what your top performers are interested in and look for the right project to challenge him / her. Look for projects that will position them for promotion. Keep them stretching and growing. Beyond that, just be sure they're paid a fair salary - one a bit higher than their more average peers.

[Laura Schroeder]

Great advice, Ginger! The best managers actively help people on their team grow and shine.

[Derek Irvine, Globoforce]

Very well argued and presented - on both sides, Laura. A point I made before on this: http://bit.ly/9JW1Nl

One thing that should be clarified (and resolves many of the problems of linking reward to performance) is the "currency" used for reward. By their very nature, cash recognition (or bonuses) are a problem as cash quickly becomes an entitlement and is easily confused with (or subsumed by) compensation. If the goal is to recognize above and beyond efforts of employees then recognition with a different “currency” than the cash used in compensation must be applied. That’s where strategic recognition comes in — giving a different currency for recognition with clearly defined and oft-repeated reasons deserving of recognition — to ensure employees know when they are being PAID vs. being REWARDED.

[Laura Schroeder]

Derek, thank you for underscoring the point about reward currency. There's so much more to feeling appreciated than just money. And thanks for sharing the link - what a great quote from Jeffrey Pfeffer!

[Jim aka Evil Skippy at Work]

I think I gave myself whiplash from nodding "yes, yes!" with so much enthusiasm as I reached the conclusion of your post. For years, I have been a cheerleader about the importance of our relationships with managers and colleagues. Having a great workplace is dependent on so many things, and compensation level is only part of the mix. Sure, if compensation is way out of whack there will be problems -- but compensation levels can be less than perfect and employees can still be thrilled with their workplace. Too much focus on money can lead to morale hell. (I appreciate how this blog recognizes the importance of compensation issues, but also of how compensation is part of a larger picture).

[Laura Schroeder]

Thank you for joining in the discussion, Evil Skippy. You've highlighted an important point: Compensation is a means to an end, not an end in itself, and has the most impact as part of a larger strategy.