Paying for Poor Performance

October 25, 2011 § Leave a comment

I made a presentation at a Society for Human Resources Management Conference.  I asked the audience of HR professionals if they wanted to hear something new and exciting.  They indicated they always wanted something new but when I showed them a model of leadership that did not include pay for performance they revolted.

Human Resources managers have difficulty seeing a world of high performance and optimum accountability without the pay for performance
policies.  They insist that top performers must be paid according to their results.  Most are addicted to this policy and, the sad fact is, it doesn’t work.  Here are three compelling reasons why.

First, pay for performance is a method of control.  Control is the opposite of freedom.  Without freedom people are hesitant to take risk and to be innovative.  Pay for performance damages innovation and creativity.  Furthermore, in his book “Why We Do What We Do”, Edward Deci explains how pay for performance rewards causes people to lose intrinsic interest in the tasks they are being paid to do.  If policies that control behavior damages both innovation and interest in the task can we conclude they can also damage performance?

Second, pay for performance policies ignore factors that come from the system within which people work.  Ignoring system issues prevents innovative and significant performance improvements.  For example, a sales person who makes huge bonuses might be benefiting from his/her specific assigned territory.  Why should he/she continuously make those large bonuses when the client mix is the major contributing
factor?  Furthermore, if the client mix is the major reason for the performance success, why can’t the other sales people develop their territories to match that client mix?  These questions rarely get asked or answered because the sales person will protect their position or risk losing their competitive edge against his/her fellow sales people.

Finally, pay for performance bonuses policies very often encourage unethical behaviors.  These behaviors are difficult to prevent especially when the bonuses are large or when the stakes are large.  There are dozens of examples I could site.  The most disturbing involves our children.  In July 2011, 178 teachers and administrators in Atlanta schools cheated to boost test scores for the students and avoid penalties by the No Child Left Behind policies.

People addicted to alcohol and cocaine continue to use these substances even though they experience the damaging results.  I believe HR professionals do the same with pay for performance policies.  They see the damage yet they don’t make the connection and they don’t change behavior.  It takes courage and persistence to change this policy.  I think it is time we stop this addiction.


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