We Are Not Rats and Compensation is Not Cheese

Pay for Performance (P4P) is currently the biggest trend in compensation. I am a huge proponent of this effort, but I also fear its failure. Too often I see companies believe that just the existence of such a program will improve performance. Let me dispel this myth.

We have all read the studies (or seen the cartoons) about a rat making its way through a maze because there is cheese at the other end. While these results are compelling, we must remember that our employees are not rats. We must also remember that compensation is not cheese. Simply putting some money at the end of a year, or multi-year project is not enough to ensure that employees will find their way to success.

Secondarily, rats do not understand us when we speak to them (or email, tweet or talk to them.) Therefore our only method of dealing with rats is to let them figure things out on their own. It is important to remember that we can communicate with our staff members. We can provide direction along the way. We can help, cajole, motivate and drive people.  We can even teach them how to do these things for themselves.

So let’s talk about incentives and people.

In academic experiments, it has been proven that incentives and rewards are effective in getting people to perform tasks or accomplish goals. The sums provided are usually quite small (usually less than a few dollars) and the timeframes are generally in minutes, hour or days. While these studies give us insight into the workings between behavior and economics, they are often poor analogs for the long-term, high value incentives that are currently all the rage in the world of compensation.

We must understand that most people like strong leaders.  They like to be given a destination and want to be told they are doing a great job at getting there. Most people are not strongly self-driven and most will not find, without ongoing interaction, that your corporate goals inspire or drive them in any passionate long-term manner.

We must stop treating our employee like rats, our goals like mazes and our pay programs like cheese. We need to understand that incentives work, but communication and leadership are requirements for long-term efficacy. If we move beyond the idea of “pay manages peoples actions” we will find a more holistic solution that is truly effective.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation”,  “If I’d Only Know That”, “GEOnomics 2011” and “Equity Alternatives.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts, a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay

Comments

[GIL WALTER]

I FULLY AGREE ON YOUR PHILOSOPHY OF OF BEING A STRONG LEADER AND LEAD-NOT JUST TALK-TO YOUR EMPLOYEES, BY SETTING A GOOD EXAMPLE. GREAT STORY-THANKS G. WALTER

[Fred]

Pay for performance is just a cover for managers who can't manage their way out of a paper bag.

[E. James (Jim) Brennan]

Sounds like Fred had a terrible supervisor. Wonder if he agrees that his bad manager should be paid the same as an excellent one?

Reinforcement encourages repetition. If you don't differentiate treatment according to output results, people will rightfully decide that you simply don't care about quality, quantity, time or costs. I would personally hate to work anywhere where lousy results earned the same rewards as superb accomplishments. To each their own, of course.

[Dan Walter]

I can understand Fred's perspective. In fact, many managers are not well trained at managing. Pay for performance and other programs are often designed to make managers more effective. I am not sure there is anything wrong with that.

[E. James (Jim) Brennan]

Yeah, but it's wrong when the organization defaults on its responsibility to assure that people-managers know what they are doing. Then someone above the manager failed to perform THEIR essential management task.

You don't even let a kid get behind the wheel of an automobile without a valid driver's license, but too many firms let anyone exercise immense supervisory powers without any controls or consequences. The fact that there are many lousy drivers doesn't negate the valid purpose of reviewing driver ability before licensing. Ignoring bad behaviors won't end them, but better management selection, evaluation and training might.