Pay for Performance Programs
A Manager's Viewpoint
Subject: Pay for Performance, Management, Incentive Programs, Sales Quotas, Fair Market Value
As a manager in a large Fortune 500 company I was asked to participate in a team building session with other managers that centered on the topic of increasing productivity. Many ideas were thrown out, but the one that kept coming up from a few of the other managers was an incentive plan for people who worked on the factory floor and administrative types (i.e., the hourly people).
A salesperson, a true one, carries what is
called a quota. A quota is the amount of sales he has been requested to
generate for the company by his superiors. Let’s say for instance the
salesperson has to generate twelve million in sales this year. The salesman’s
superior expects him to make that number in order to help fulfill a greater
objective, the overall company revenue. All sales add up to one overall number
(e.g., a company could have 5 salespeople, each having to generate the same
amount. Therefore the overall number for the company is sixty million). A
company’s worth and stability is dependent on great sales numbers.
Every month the salesperson is measure against
their quota. He is expected to generate one million dollars in sales every
month. What happens when he doesn’t? Well, his superior will first become
concerned. Second, the superior will inquire what he expects to do to make up
for the shortfall. If the answer is reasonable, the superior will cut him some
slack. If, as the year goes on, the sales’ numbers continue to fall short of
one million a month, the superior will eventually have to make a decision on
whether to keep the salesperson on or find a replacement. For a
salesperson, there is no way of obfuscating the facts; you either make your
quota or you don’t. You’re either selling a million a month or you're
Not let’s take as another example an hourly wage
person who works on the factory floor on a production assembly line. Let’s
further say there are five people on this one production line each with a role
to play in assembling a widget. A piece-part quota (i.e., how many widgets
they have to assemble as a team) of 1,000 widgets has been set by their
manager. As the team works to accomplish this goal, some of the team members
give 110% while others may see no need to over exert themselves since the job
is getting done. At the end of the month the quota is made and ALL five
individuals get the same compensation.
In the salesperson example, the responsibility
of performance falls squarely on the salesperson. There’s no wiggle room for
blaming anyone else if he fails to achieve quota. On the other hand, if
he succeeds in attaining his quota, he gets all the kudos to himself.
His metric for performance is very objective, a quota. Pass-Fail.
In the example of the production workers on the assembly line, where does the responsibility of success lie? With the manager? Or, with the assembly line team? Or with the individual members?
* Note: I didn't address the other 3 possible outcomes if the team DOESN'T meet their quota. That's a whole other set of issues.
These three key points were behind why I wasn’t keen on the idea of additional compensation. Of all three, the last one c) was the most worrisome. Why? In order to put an incentive program in place of this nature, you will need to create an infrastructure of people and tools to support it. This may not seem like a big deal when we are talking about five people. But take note, this was an organization of over 10,000 hourly employees spread geographically over 10 states. Logistical questions had to be considered:
I could go on, but you get the idea. It's all well and good to come up with new ways to compensate employees. New ideas are always great. But the devil, as the saying goes, is in the detail.
Nonetheless, the center of my contention was a
simpler question on compensation, “Why do we have to create an additional
compensation program for people to do a job they were hired to do in the first
place?” We were already paying people "fair market value" to perform.
When you get into group compensation, you enter a whole new world of human dynamics that has the potential of creating more problems than it solves. Studies have show that money isn’t the prime motivator, but that a cohesive, pleasant and fair working environment is preferred. The focus should be more on the quality of the work experience, rather than the pay.
Victor Antonio G., business motivational speaker and author of “The LOGIC of Success”.
Copyright © 2004 by Victor Antonio G., Business Motivational Speaker. All rights reserved. This article MAY be reproduced in any form or by any means, electronic or mechanical, including photocopying, as long as the author’s name, website and email address are included as part of the article’s body. All inquiries, including information on electronic licensing, should be directed to Victor Antonio G.
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