The Hassle of Performance-Based Pay

Kylie Quetell Compensation/Cash Money, Hourly Hiring, Managing People, Metrics, Payroll, Performance, Performance Reviews, Policies, Training and Development 5 Comments

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. 

Kylie Quetell

Kylie Quetell is an Organizational Development professional, focusing on people, strategy, and process (notice that “people” is listed first). She is a Chief Operating Officer and a phenomenal public speaker, coach, and leader. She holds a Masters Degree in Educational Leadership and certifications in Leadership Development and Change Management.

Kylie was formally a national champion rugby player, and has coached high school and women’s club sports. She has also volunteered her time working with Veterans and for environmental causes.

A Maine native, Kylie brings a love for salty language to her current home in Metro Detroit where she lives with her wife, dog, and cat.

Comments 5

  1. Two comments:

    Most people want to contribute to success and the key issue is addressing what is getting in the way of performance (e.g., poor priority setting, the desire to be helpful supersedes the priority work they are responsible for, inadequate training, ineffective process design, etc.).

    Most managers do not confront bad performance, so it creates a history of overrating performance. So when the manager comes along who wants to confront the poor performance, you are hamstrung by the legacy of ‘satisfactory’ performance ratings.

    My view, after much experience with performance systems, is that merit pay and performance reviews should be replaced with developmental evaluations for all, and “corrective action” plans where they are necessary. On this, Deming had to right.

    1. Kylie Quetell Post

      Thank you, Dwight. I like your points here. I am a firm believer in coaching up, and if that doesn’t work, coaching out. I think managers often get busy, so these systems fail when we create action plans and then never follow up or support.

  2. Three points
    1. For the most part, money is not a motivator. In fact, research shows it can be a demotivator. (see the book by Deci and Flaste)
    2. If you really know which KPIs actually make the difference, traditional performance management will work just fine.
    3. You don’t talk about what you pay. If you’re playing the usual game – you know, 1% or 2% over the pool – the money might be symbolically important but otherwise it’s meaningless to anyone who can do basic math and potentially insulting.

    1. Kylie Quetell Post

      David, I agree. Yet so many organizations still have commission plans. Are we the minority here?

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