Pay-For-Performance? I Vote Not Yet

I am a true believer of the following statements:

  1. That government employee’s work for less than what they could earn in the private sector.
  2. That our best public sector employees should be compensated with the best paychecks.
  3. That pay-for-performance is a great concept that should be applied as an incentive to encourage great workplace performance.
  4. And, that pay-for-performance should not be part of government pay plans. Today.

I actually do not think that pay-for-performance should be instituted in US government agencies today and in fact, get a little scared whenever I see them. The reason is because the only way a pay-for-performance plan can be successful is if performance is well-defined. What does well-defined performance mean? In my world, it means a set of metrics that are objective (i.e. not related to how your boss feels that you are doing), are clearly stated up front (everyone knows exactly what they held accountable for), and that tie to strategic outcomes outlined in the agency’s mandate or mission.

There are only a few private sector companies (even fewer government agencies) that can demonstrate these performance requirements sufficiently to tie them to compensation. Oh yes, even the private sector struggles here. It is true that some industries are a natural for this type of compensation scheme, sales being the perfect example. You sell more, you get paid more. But for most other private sector companies, it is a struggle to put the right metrics in place. Yet though I’ve seen few companies have good solid outcome metrics, I continue to see many more insist on implementing pay-for-performance anyways…government being one of them. It is almost as if the rationale is: if we put the compensation plan in place the metrics will follow..!?!?!?

What happens next in this cart-before-the-horse scenario is confusion, disengagement, nasty legal issues, and just bad feelings when performance is subjectively determined and ties to nothing of strategic value. In fact, it seems to me that these compensations systems do greater damage than good when they don’t have the metrics to support them.

To be clear, while I think the idea is a great one, it can only be used once the well-defined metrics are in place. Would love to hear if anyone has examples of where a pay-for-performance system has worked positively in the government (or even the private sector). It would be great to highlight some best practice work.

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Peter Sperry

My experience in sales and marketing taught me that pay for performance compensation can be even more difficult in this are than people realize. Self congratulatory sales hype not withstanding, success in sales always seems to be 85% quality product, 10% marketing and 5% personal skills and efforts of the sales force. Compensation tends to go 85% to sales force, 10% to marketing, 5% to the people who actually produced the product. Which is more difficult, selling an innovative market leading product instantly recognized for its qulaity by potential customers, spreading the word about the product’s features, benefits and availability or actually designing and manufactureing it to the standards necessary to command respect? Who gets paid 15-20 percent commission on the final price and who gets a set salary or hourly wage? Which is larger?

If it is this difficult in what should be pay for performance’s most natural environment, imagine the hurtles of making it work in government.

Mark Hammer

All reviews I have seen of pay-for-performance in the public administration literature essentially come up with the same general conclusion: it could work if about 37 different stars and planets aligned.

Sadly, even if you could have nice clearly-defined performance measures in work-unit A, that doesn’t mean they would be comparable to those used in work-uit B or organization/agency C, and applied as consistently.

IF you were able to assure that well-defined reliable indicators of performance could be established that were comparable (and fairly so) across multiple organizations and units within organizations, you would still need to be able to assure that all managers applied them equally, and just as important, that their respective budgets could support them.

keep in mind that in the priovate sector, better performance generally results in greater revenmue and savings for the organization. In the public sector, higher performance can often result in no revenue, no estimable savings, or even greater costs. In other words, higher performance does not always offset the performance bonuses. So, unless one has a budget with a great deal of flexibility, there is the risk that too many people earn a performance bonus which you can’t honour (which the great state of Georgia learned the hard way). true, you can make the performance bonus so meagre that you can assure you’ll always be able to pay out, but then that tends to undermine the incentive value, doesn’t it, so why bother?

Christopher Parente

Good post Alison. I too often ponder the difficulty of producing clear performance metrics. Personally I think this is a huge gating item for the adoption of telework by the federal government.

Since you asked for private sector examples, I’d say pay for performance works reasonably well for me personally. I’m a partner in a small comms. agency with b2b and b2g clients. The more business I manage (NOT sell, big distinction), the more I am compensated.

Far from perfect of course, but I feel this does a good job of tying my compensation to the value I provide my firm. Also keeps me totally focused on client service, as opposed to being out trying to find new clients.

Alison Simon

Christopher-I just left a from where the compensation was as you say, pay for quantity. Although I like the focus on the work, my biggest concern with that type of incentive was that the emphasis becomes how quickly can one move from one project to another ( or even how many things can you juggle at once). At some point one cannot spend all their time and energy on just one client (unless compensated accordingly). On the other hand, you need to spend sufficient time with each client. It is truly a delicate balance and again proves that for each situation, there needs to be a custom designed pay plan.

Patricia Paul

I am a firm believer in pay for performance coming from a business development and sales background. However, as in most cases, there is not one perfect solution that provides for desired results and makes everyone happy all the time.

For instance, I don’t find a commission only compensation as a reasonable solution for day one of a sales position. There is a learning curve for the new sales person and making nothing for any period of time can be disastrous to finances. However, should the employer be expected to foot the bill for the learning curve without any hesitation? That doesn’t seem fair either. But, when you look at total expected results and expectation communication, you have a new sales employee in a learning curve with an expected “ramp up time” on a salary with promised commissions on sales that will be generated over the length of their employment and are expected to more than compensate the employer for the compensation during the “ramp up time”. This arrangement presumes that the new sales employee is committing to the employer that they will be steadfast and perform. It also presumes that the employer feels strongly enough about the new recruit to be willing to promise commitment to that employee for a given ramp up time. Mutual promises are being made in this type of relationship that must be honored to the best of everyone’s ability for all parties to be “happy”.

I have been in orgranizations that shied away from pay based on performance. But again, what is “performance”? Is it the meeting of the very letter of your job requirement as posted in an employment agreement. I don’t think so. However, someone else may strongly differ with me. I have worked side by side with strong, efficient, ethical and just great employees who were heard to exclaim in a moment of anxiety, “I’m not going to worry about this. I don’t get commission for this task or deliverable.”

As I write this reply, I am remembering times in my own career that I have been extremely motivated and inspired to insure top performance and execution were guaranteed on my projects. There have been other times, that I am less excited to note, when my enthusiasm was waining. And both of these “times” have happened in both types of scenarios of compensation. But as a whole picture and person, I know that I produce more when I know that what I do has a very definite impact on how I am compensated.

On the other hand, I have spent my career in the commercial arena. As I began working with employees who had spent their careers in the public sector, I was educated on the terms of efficiency and effectiveness and understanding that effectively working on the missions of the public sector cannot always be done through the most efficient manner (this concept was explained in the most simplistic way to me concerning the building of a tank for the US Military–I won’t go into the whole description–but the meaning was clear).

We have to determine what our goals are and work accordingly using the skills that we have been gifted with to achieve the final ends. It takes all types of employees and workers (and volunteers) to achieve the many “ends” that we all strive to, individually and as a whole. I would say that people will choose where they feel most comfortable performing and gravitate there. And hopefully-it will provide for the best outcome for the employee and the employer and the whole positive progression of life.

I know that I veered from the topic down a road that looks at compensation in a simplistic performance based environment of sales. There are so many other ways to approach this situation such as variable raises based on performance at variable times in your employment in a given position (as opposed to only annual reviews, for instance). I will spare you my dissertation on this part of the topic.

Suffice it to say, that I have had many a lively conversations concerning compensation and performance.

Susan Smoter

If you can remove subjectivity from the workplace (any workplace) via performance measures (and I believe you cannot), then Pay for Performance is okay. Unfortunately, we do not work in a system where productivity is measured by pieces produced, sales made, etc. We are service-based and while we are getting better at measuring the quality and value of the services we deliver, putting value of individual contributions on that remains elusive.

Melissa A Livengood

Unfortunately, I think the government breeds lazy employees. It needs something to TIE performance with pay. I’ve been employed with two government agencies in the past and I see the same results. You have employee X who gets their within grade increase for accomplishing absolutely nothing. Basically, they sit in their cubes and do the bare minimal because they know how difficult it is to get fired in the government. While other employees who care about the service they perform and do a good job; those who do less get the same pay and benefits for NOT stepping up to the plate. I’ve also been in the private sector (pharmaceutical and consulting) where the performance-based system worked. During rating periods, you were given a chance to write your own evaluation tying what you accomplished to your job description/responsibilities that were explained and documented from day one. In that evaluation, you had to show what goals you met and how your brought shareholder value to the table. It was a competitive environment and stressful at times, but for those who chose to ignore projects or put their work on others, it filtered those employees out of the company. While I think we probably need a “hybrid” approach to the pay-for-performance in the public service arena, something needs to change soon that will produce more efficiency throughout the government and give the taxpayer timely results. I think many of the programs in the government are not performing as they should due to incompetent employees and outdated procedures.