The Hassle of Performance-Based Pay

Kylie Quetell Compensation/Cash Money, Hourly Hiring, Managing People, Metrics, Payroll, Performance, Performance Reviews, Policies, Training and Development

Are performance-based pay structures worth all of the hassle? It feels like the amount of effort that goes into these pay structures might not be worth the squeeze. 

Typically performance-based pay requires the measurement of key performance indicators.

That means that I’m paying someone to measure all of the “stuff.” That’s fine for me because as we know, you can’t manage what you can’t measure. We can argue how true that statement is in its entirety later, but we can agree there is some truth to that. For the sake of argument, if I’m smart enough to choose the right KPIs to tie my business success to, I can use some of those same KPIs that are in the control of sales teams to measure their success. So that added hassle is a breakeven situation and therefore not a deal breaker. 

It takes a team.

Now instead of having one payroll person to run the checks, I’ve added whole new levels of complexity. Depending on the size of my organization, I now have a team of folks working to ensure proper payroll calculations are completed because I don’t just pay my team a salary or an hourly rate. This team is also responsible for reporting back to our larger accounting team the amount that our commission structure is paying out so we can ensure it falls in line with the right percentage of gross margin.  As a business owner, I don’t know if that cost is worth it to me. 

It’s variable.

It can be hard to consider annual expenditures. Quarterly is pretty spot on, but the market is a fickle thing and 12 months is a long time. We can set goals and create projections, sure. My projected revenue is never on the money 100%, and now my expenditures aren’t either. Wouldn’t it be nice to at least get one of those right? 

I have to explain my pay structure

This one doesn’t take money, it just takes time. Plus added time to answer questions. I hate to sound like negative Nancy, but damn, wouldn’t it be nice to just be able to explain something once and then walk away? 

Why can’t we just trust that people will work hard? 

Is that so very naïve of me? I welcome the feedback on this one – I’m honestly torn. 

Why not just pay your people a higher hourly rate? Once the year is over, take a look at the profit margins and revenue and pay out a bonus. That’s how you can award your top performers. 

Is my distaste for performance-based pay a product of my generation? Are we getting lazy? Or maybe impatient?

These are the honest questions that are swimming in my head about performance-based pay structures. Perhaps this proves my point – the amount of time I spend thinking about his damn structure tells me it is just not worth it. I welcome your feedback.