The Implementation of Professional Management

Chapter 5
Pay for Performance

For far too long companies have given automatic pay increases based on a percentage to all employees company wide. This practice can and has eliminated the ability of an organization to stay competitive in its market place and, ultimately, may cause it to close its doors and go out of business.

Continual, unearned pay increases raise the cost of doing business and tells employees that the company will pay you for mediocrity, thus insuring lost profits.

As an employee, what is my motivation to excel, to improve my abilities, and to surpass what I achieved yesterday? Why should I put forth any energy when the person next to me is being paid the same amount of money, and that person comes to work late in the morning, produces only seventy percent of the work I produce every day, and still receives the same percentage pay raise as I do?

If you are the owner of a company, a manager, or leader of people in any organization, industry, or trade what do you tell the employee who asks you, "Why should I work harder when the person next to me is paid the same?"

If you do not have a specific Pay for Performance system in place that quantifiably measures an individual’s job performance then you can’t say much, can you? Unless you are the owner of the company. I’m sure every manager put in the position like this tells the employee, "Sorry, but that’s the way the ownership pays people." What else can a manager do?

I would like to suggest that the manager sit back and evaluate the various processes involved in their department, which their employees perform each day. Ask yourself if each item that you came up with can be measured. Can the results of a given task be gathered and clearly show results? If so then go to the chief executive officer and make a presentation to replace automatic pay increases with a performance based pay system. If your idea is shot down then at least you can have a clear answer the next time one of your employees asks you why they should work harder, when the person next to them is making the same pay rate.

I will go through, in detail, how to develop a measurement system and implement Pay for Performance for those of you who have the ability to change company policies.

If we take a look at the sports world and see what’s measured in relation to an individual’s job performance we can take this into our business environment.

Football measures tackles, interceptions, sacks, attempted passes, pass completions, and points scored. Baseball measures hits, runs, errors, home runs, batting averages, and every other specific details related to the sport.

When a professional athlete wants a pay raise, better known as free agency, and is in pursuit of a new contract, what do you think the ownership is looking at in order to evaluate what amount of money they are willing to pay this athlete?

They look at the specifics of the job performance and compare those results to other individuals doing the same job throughout the league.

As a business owner or manager, we must step back and take a hard look at how we reward our staff with pay increases. If performance is not specifically measured, then how can you possibly give anyone more money? An increase in an individual’s compensation must be earned and not just given to someone. If it’s an automatic increase, you as the manager are contributing to the demise of your organization. You are contributing to the increase in the daily overhead cost of the business. You have contributed to the problem and not gone the extra mile to fix the problem through the development of a Pay for Performance system.