John Rubino wants to eliminate Base Pay Merit increases. Trying to reward top performers with a 2-3% merit budget is a actually de-motivational, he says. Large lump sums are more meaningful ways of rewarding high performers, he claims.
Crazy? Only insofar as it’s not heretical enough. At the risk of having my CCP credentials repossessed, I say we eliminate Pay for Performance. Full stop.
Instead let’s Reward for Talent.
There are 2 problems with Pay for Performance: the pay part and the performance part.
The science has been clear for decades that money is not a motivator. People like Dan Pink cite study after study where the larger the reward offered, the poorer performance became. Pay people fairly and motivate them in other ways (career opportunities, autonomy, recognition), and you get far better results.
This is not your grandfather’s workforce. Old performance management constructs were built to handle an industrial workforce when performance = the number of widgets you produced in a given day. Now we have a knowledge-based workforce where innovation is the survival skill. Innovation takes experimentation, which often relies on the willingness to make mistakes, challenge accepted practices, and is squishy to measure. Performance management processes tend to frown on challenging accepted practices and subjectivity.
True story break: I actually had someone tell me that being able to recite the company mission statement word for word was a performance factor. It was worth 10 points on the rubric. Holy 1990s!
Instead the HR strategy should revolve not around grading past performance but developing talent. HR should be in the business of fostering conversations around continuous feedback, development, and succession planning.
So what is a self-respecting compensation professional to do with all of that new found time on his/her hands?
1. Right your base pay strategy
Pay people a market relevant base pay. Too often incentive pay and recognition seeks to cover for a poor base pay position. Get your market position right and keep it that way.
2. Recognize, real-time
Develop a culture-appropriate recognition program that is real-time, meaningful, and viral.
3. Think Beyond the Green
Reward beyond cash. Consider innovative reward programs like career rotations, sabbaticals, work/life initiatives, special assignments, etc. Let your employees tell you what motivates them to perform.