Is it Time to Pay for Performance?

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Change is hard. Personal change is tough enough. But what about changing the operating style of an organization? Add to that the emotional and fiscal

What happens when you pay for performance

What happens when you pay for performance

drama of changing the way you pay employees and you’re looking at a potential firestorm. We’re talking, of course, about converting your organization’s pay system to performance-based pay versus paying for tenure.

Tenure pay existed for perfectly logical reasons: It kept people around and saved the expense and hassle of hiring. It maintained standard raises, which facilitated book keeping.  It rewarded employees for their loyalty to the organization. But tenure pay only incentivizes people to stick around, not necessarily to grow. And as we’ve all discovered, people who are content to stick around and not grow aren’t exactly the ones who drive innovation or excellence. They’re kind of like human paperweights. And who uses that much paper anymore?

It is possible to transform your company into one that pays for skills and performance versus paying for tenure. But there is a lot of groundwork to lay.

First, you have to make sure that all of your job descriptions are clear and complete with all performance metrics spelled out. Yes, I’m gnawing on that old bone again. There’s a good reason. If you haven’t created this baseline for performance, there’s no way you can expect employees to meet it and you’re looking at all kinds of potential messes, from simple failure of your performance pay project to discrimination lawsuits. Get your performance standards nailed down and accessible for each position.

Next, make sure your managers are on board. If they’re not, the whole plan will fail. You need to explain to them that this actually makes their jobs easier, in some respects, because as long as people will receive raises without improving performance, it’s up to managers to figure out how to incentivize them to contribute anything beyond the bare minimum. With performance based raises, employees are responsible for their own performance, with measurable outcomes for success and failure. See?  It can be easier for managers.

Then you need to set about communicating with your entire employee base. Explain to them that you want to reward everyone, you’re not trying to withhold rewards. But you’re going to reward them differently. You’re going to have clear performance targets and you’re going to give them clear roadmaps how to meet those performance targets. Document this in writing, tell them this in a meeting, create a picture for your team.  Everyone likes pictures J

Then, by all means, don’t have performance reviews for at least six months. Give people a chance to absorb this new information.  Managers will need to re-enforce the message and the details, showing the employees how to meet your performance standards. And be prepared to explain to those who fall short what they can do to earn the big raise next time.

Let’s face it, some people are going to hate this. Some of them will stick around anyway. If you’ve been paying the receptionist to do a great job every year, giving her a raise every year just because and she hasn’t added one iota to her skill set, she’s probably overcompensated and still has no reason to leave. (Hint: maybe she looked around and realized she is paid more than the going rate and doesn’t want to leave and suffer a pay cut.) Others, who can’t or won’t meet the new standards will go, quietly or otherwise. They may threaten reprisal, because you moved their cheese and that’s how some people handle change.  The ability to handle change and uncertainty with equanimity is one of the five key factors of a great employee. So document all of your expectations and their failure to meet them and be glad they’re leaving.

Some people, the high performers, will love it. Hey, they contribute and are rewarded greatly. And those are the ones you want on your team anyway. And if you could use help to ensure a successful transition…call us.


We work with companies on a project basis or on retainer, providing a custom level of HR help designed for your business. Contact me at Caroline@valentinehr.com or call (512) 420-8267.  


We work with companies on a project basis or on retainer, providing a custom level of HR help designed for your business, with offices in Austin, San Antonio, Dallas and Houston. Contact me at Caroline@valentinehr.com or call (512) 420-8267.