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Couldn't agree more, Anne! Most of the PFP plans we find are sadly lacking the basic metrics of success. Absent a good measure, it is up to the supervisor - the one with poor people skills and a complete lack of understanding about performance and rewards.

I think pay-for-performance will be around as long as there are employers and employees. Great post!

- Barry

Right on. You don't throw the baby out with the bathwater.

An interesting and important post, Ann. I doubt that pay-for-performance will go away. The concept makes too much sense. There are places where it seems to work, like Nucor, but there you have a very different culture and a very different mix of rewards of all kinds than most corporations.

Barry:

Thanks, glad you like it. It is destined to be around long-term, so I guess our work is cut out for us, eh?

Jim:

Xactly my point - thanks!

Wally:

You're right, and the fact that some organizations (and I've "met" them, too) are able to make it work suggests that it is not impossible. Thanks for the comment!

A major kurfuffle surrounding the anti-pay-for-performance movement was fueled in the early to mid-1990s by Alfie Kohn, author of Punished By Rewards. Alfie is still around, and appears focused on where he came from - early childhood education and removing any aspects of competition from it.

There is sound research that contradicts the anti crowd, plus the primary reason the antis will not overcome is that business people believe that pay for performance works.

I agree Anne and the other responders that effective design, implementation, and administration are the prime keys to having a success system.

Andy:

Couldn't say it better than you just did - thanks!

Ann,
Thanks for the posting. Here are some of my thoughts on the topic

Legitimate Pay-for-Performance is difficult but attainable.

First let me note that this entry may not make me any friends in the executive compensation world.

A big piece of this puzzle is that shareholders, advisors and most executives are stuck in a world of “executive summaries”. They focus on small bullets of that improperly summarize very complex information rather than the meat of the topic. Because of this, we tend to look at performance delivery as the final result, rather than the pieces that drive the final result. For performance to work it must be about achieving the many steps on the road to a result, not just about the result.

Just as coaches and players in the NFL say they “take it one game at a time” and the Super Bowl is just a culmination of all of those games. Executives should be asked to take it one step at a time and the final performance payout should the result of all the steps that preceded it. This will reduce payouts on false performance and provide accountability in the process. At times this will mean meeting goals without immediate cash value for compensation. At other times this will mean payouts even when the stock price, or some other corporate indicator of performance is down.

The result will be more consistent performance that more people can agree upon. This doesn’t mean that compensation will always be more consistent, or even predictable. But I think that’s fine. If we were right about our predictions in the past we would not have so many people upset about executive compensation right now. If we start now, we should be able to get it right in the next 4-5 years.

NOTE: I do not believe that executive compensation or equity compensation were a big driver of our current economic crisis. Unfortunately, in our world if simplicity it is easier to focus on this highly visible issue that it is to educate people about all of the complex underlying causes.

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About The Author

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    Compensation consultant Ann Bares is the Managing Partner of Altura Consulting Group. Ann has more than 20 years of experience consulting with organizations in the areas of compensation and performance management.

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