I do not really find a lot of companies practising performance-based salary, except maybe those in sales.
In 2007, I was an Account Manager for a facilities management company. And I was assigned to manage one of Singapore’s largest students’ accommodation.
One of the biggest challenge to me at that time was staff performance and turnover. The first thing I did when I took over this contract was to speak to all the staffs. I met everyone from front desk to finance, security to housekeeping, engineering to maintenance.
People felt that they were not rewarded enough while others feel that they shouldn’t be doing more than what they are already getting. During the performance appraisal period, staff performance and productivity improved a little. After that, it went down…. hard. Recency effects at work..
A large group of my staff, aged 30s to 50s, felt that everyone should get a pay increment, regardless of situation. They were so used to the old theory of ‘the better performer will get more and poor performer will get less’. I preferred the no performer gets nothing theory.
And that, creates a major friction. My staffs lined up at my door demanding an explanation. They gave up after I shared them my perspective. While my initiative wins the hearts of top performers and company leaders, I was a source of hate for the non-performers.
I recalled one of my technicians wanting to take a swing at me during a conversation. Fortunately, he did not.
In mid 2008, about six months after I took over that contract, I came up with a proposal to my directors and senior managers, with the idea of implementing a performance-based salary scale and suggested a customized designed Key Performance Index for the different roles within my division.
That email was cced to the Executive Director of the company. Interested to know their reply?
Well, there wasn’t any… at all. Only one senior manager liked the idea.
When I tried to follow up on my email, I was ‘strongly advised’ to focus on the hostel operations and not to be involved in such matters.. And this is the same company that, in a company dinner a few months earlier, claimed that they welcomed new ideas.
I sought advice from that one senior manager who liked my idea. What he said was nothing scientific but basic understanding of the human behavior. He said that if a performance-based pay scale is ever implemented, it will reveal every hidden headcount within the company and everyone, from technician to assistant general manager, will be forced to do real work.
Despite all that, I still believe in meritocracy. I believe those who do more should get more. I believe that performance-based pay scale can be implemented and is very workable.
Why performance based pay scale?
I think that could be a motivating factor for my team to improve the productivity. The beauty of this is that it will be a win-win situation for both employer and employee.
1. As the pay-scale is capped, the company still profits. Poor performance will lead to temporary savings for organization.
2. Company will be rewarded with improved staff performance.
3. Such a pay scale will more likely to attract high performers.
Some of its disadvantages will have to include;
1. High salaried and senior staff who is a low performer will not like this arrangement.
2. Employees might be more selective so as which customer to serve. Those known to be easier to serve will be the target.
3. There will be a major change in salary structure which HR managers will not like.
4. This will not work at all if the tasks require rudimentary cognitive skillset.
Warren Buffett is a strong believer of performance-based pay, as long as it is based on the value added by the staff/manager and not because of the underlying industry performance.
If you love what you do, if you jump out of bed and feeling excited to go to work, performance-based pay might be a major advantage for you.