Pay For Achievement, Not Just Because of It

You can pay people to do work, or you can pay people because they did work. In the world of incentives, you really should be doing both.

Consider the following. You are working at a mid or low paying job and someone asks you to chip in on an important (to them) and difficult (to you) project. You know you will have to work extra hours, maybe miss that movie you really wanted to see, or worse. Let’s look at two scenarios.

Scenario 1.

The person who requests the extra work tells you that you will get more money if you get the work done. They even offer you a multiple of that amount if you do a great job.

Scenario 2.

The person who requests the extra work gives you some money, or maybe a gift certificate, or something else in which you would find value, prior to you getting the work done. In a best-case scenario, they also offer you a multiple (perhaps a lower multiple than Scenario 1) of that amount if you do a great job.

In Scenario 1, the offer of what you will gain must be sufficiently large and enticing to stay in your mind during the difficult work. Essentially, you must drive your own motivation. You may swear a bit as you work on your own while looking out a dark window. You may even think you got a raw deal, as you wait for the potential reward for your efforts.

In Scenario 2, you eat the cupcakes you bought with your up-front reward. Or maybe, you quickly make reservations at the “apology restaurant” (paid for by the company) where you will take your better half after missing your movie night. Regardless of what you are working on, you can see, taste, or touch some part of your motivation. Sure, the dark window still annoys you, but at least you have a counter-balance.  And, if you do a great job, there is even more at the end of the trail!

In our first example, you WILL get paid because you DID something. In our second, you DID get paid, because you WILL do something. For one the motivation is pull and in the other the motivation is a push (with a pull as well). I have found that compensation programs that provide both push and pull are incredibly effective. I have also found that many companies miss this easy opportunity.

I have seen the push come from something as simple as a nice, but unexpected pre-effort dinner. I have also seen companies build some value into the their long-term compensation programs right from the start (consider the ESPP with a discount on the day you join.)

This process is regularly performed for executives and other critical employees when they are hired, but how long does that “sign-on bonus” continue to have impact? Many companies have recognition programs, but how many recognize hard work before it must be performed? I know what you’re thinking. “What if they never get the job done?” There is always a risk when you pay someone in advance, but you would never expect to get something sent from Amazon without prior payment. Perhaps you consider evolving the compensation/reward contract to include pre-incentives for specific circumstances.

Ask yourself this. Would Scenario 1 or Scenario 2 work better to get you to do something special? Which do you practice at your company?

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

[E. James (Jim) Brennan]

Every paycheck is a payment in advance. After the first performance increase, it transforms into a reward for past output as well as an expectation of continued future achievement. There is more than one way to compensate. As many modes should be used as prove effective either alone or in combination.

[Dan Walter]

Thanks Jim, but I am not sure I agree with you. If what you say is true and Paychecks are payment in advance, then every person hired at a fast food restaurant would get a check the day they started. This simply doesn't happen. Paychecks are always for something you did in the past. (unless of course you are a big wig who gets a signing bonus)

[E. James (Jim) Brennan]

Guess I an used to firms that offer signing bonuses. And it does seem to me that most people make very little productive contribution in their first month or three during which they receive the same salary that they would more properly deserve after some months of familiarization. But you are right in your detailed observation.

[Jacque Vilet]

In scenario 2 the employee gets a reward beforehand and may just do enough to get by. I doubt the manager would ask for the money back. The way you describe it, it's not an option. But even if performance is mediocre he gets the upfront reward. Maybe he thinks "hey I got something for doing a little work". He may not want to bust his ___ to get the extra money for great performance.

I think scenario 1 is best. It's the American way ---- work hard and you get your reward. I just don't think management would be in favor of scenario 2.
P4P is always "you get pay if you perform". Scenario 2 is counter to that.

Also I don't see ESPP as an example of scenario 2. You have $ deducted from your paycheck and purchase stock so you are really paying for it. For 15% deduction in stock price. Hmmm . . . .not enough for me.

Sign-on bonuses are a crap-shoot. Risky. Many times for an executive they are given to make up for the money the exec is leaving on the table at his last employer. So that just makes him "whole".

Bottom line the company takes a risk/spends money with scenario 2 for maybe nothing. No P4P here if you ask me.

My vote is scenario 1!!!!

[Dan Walter]

Jim:
Signing bonuses are only one iteration of a "push" payment. I have seen this work with some as small as a box of cupcakes and something as large as several thousand dollars. The keys are in design, timing and communication.

Jacque:
We often create work cultures where skepticism is a key component. Whether your use a push, pull or combined strategy pay will never manage people. The payment programs should simply make management easier.

I have seen people react very positively to push payments. Rather than "Hey I got something, now I can relax." I have seen: "WOW I got something, that's great, They value me and I will show them that I deserve it.

P4P is just that. What I pay you to perform, pay you because you performed, Pay you to want to perform, P4P is intact. The keys are Pay and Performance. This process is not for every instance, but it a useful tool for many companies.

[Shawn Miller]

I've had a personal experience with a similar 'push' event.

My husband was assigned to a big project that was critical to the organization. It was a great career opportunity, but everyone knew that it would be time-consuming and difficult. Just prior to starting the project, the manager took each employee aside and gave him/her a personalized (hand-written) card from the company president, affirming the company's decision to bring them onboard the project. Included in the card was a lump-sum award AND a restaurant gift card. The president asked the participant to share a nice meal with the family (or friend), to thank them in advance for the employee's efforts.

Really nice touch. It's (the memory--not the cash) stayed with us a long, long time.

[Dan Walter]

Thanks for sharing this story Shawn. This is exactly the kind of thing I meant. It is surprising how a reward done right, can mean less money but more passion. I think that compensation pros get so tied up in the dollars that they can forget how important the delivery mechanism and timing is.