A friend of mine sent me an article recently that had me pulling out my hair óand I don’t have that much hair left to pull out! It seems a 3,400-person bank in Ohio had a big problem with turnover among its check-proofers (a low-paying job that combines the benefits of tedium with the rewards of low pay and mission-critical accuracy). According to bank managers, proofers were “vital to ensure the correct amount of money is moved from one account to another… The bank’s reputation and the customer’s satisfaction depend on it.” Someone’s innovative “solution” was to institute a pay-for-performance plan. In fact, the spokesperson said the pay plan worked so well that they intended to implement it throughout other departments. As the Church Lady on Saturday Night Live used to say, “Well, isn’t that special?” Be Careful What You Reward, You Just Might Get It I totally agree that good performers should receive good pay, but most research shows that pay only has a temporary effect on performance. However, tinkering with pay programs is similar to wandering into a blue-haired feeding frenzy… getting between people with bionic hips and boiled shrimp can be downright hazardous to your health. Most jobs follow the laws of supply and demand. More demand for a specific job combined with fewer qualified people yields higher pay scales. But ó and I mean BUT ó economic balance also assumes every employee has equal skills and is equally productive. Of course, anyone who has ever worked in an organization knows “equal skills” are pure fantasy. Employees naturally tend to separate into top-scale people, middle-of-the-roaders, and bottom feeders. In most cases, this follows roughly a 20/60/20 ratio. But did you ever wonder WHY? Or more importantly, how to change it? Traditional practices:
- People (even professionals) believe interviews are effective because they do not systematically compare detailed pre-hire interview data with detailed post-hire performance.
- People tend to “forget” that only about 50% of the people who pass hiring screens become good performers. No news about new-hire job performance becomes good news.
- Human decision-making flaws encourage hiring managers to predict job performance based on social impressions and impact instead of empirical data.
- No hiring manager wants to publicize 50% of his or her hiring decisions are inaccurate, so they often rewrite history by changing expectations to match reality.
- Wake up and smell the coffee. Effective placement practices are not a learn-as-you-earn activity. Study as much about best hiring practices as possible. The Uniform Guidelines on Employee Selection Procedures are a good place to start.
- Thoroughly understand job competencies by doing a competent job analysis.
- Choose professionally-developed tests that accurately evaluate specific competencies.
- Make sure every test score is causally associated with some specific aspects of job performance.
- Measure each competency at least twice using two different methods to reduce error.
- Follow up and monitor the system, tweaking it as necessary.
Did you notice that “pay for performance” was not included as part of a good selection process? When Pay for Performance Goes Bad
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- One company paid incentives for orders. Sales went up. Returns went up. The company implemented a restrictive return policy. Clients became very unhappy.
- One company paid their programmers for catching software bugs. Payroll increased. Software bugs increased.
- Auto mechanics were paid based on the size and number of their repair bills. Customers complained about high prices, unfixed problems, and unnecessary repairs.
There are several psychological principles that drive this kind of behavior:
- People tend to slack-off when they feel underpaid. That is, they adjust their productivity to compensate for low pay.
- When pay is tied to group performance and individual performance is ignored, group productivity tends to fall. High performers tend to resent slackers.
- Senior manager’s historical shabby treatment of subordinates has encouraged a get-mine-now attitude among employees.
- What is measured (and rewarded) tends to get more attention, while everything else takes second priority.
- Individual pay for performance generally leads to self-serving behavior.
- Innate attitudes and beliefs can lead to unproductive work behaviors such as workplace violence, low integrity and theft.
Bottom line: Pay is a very complicated process that often leads to unexpected consequences. Recommendations The recommendations are so simple they seem complicated: 1) use best practices to hire right-skilled employees and managers, and 2) get out of the way and let them do their job. Best practices ensure that marginally qualified people are screened out pre-hire, instead of later. They also maximize diversity by basing decisions more on skill measurement than impression management. Getting “out of the way” means training, managing, and evaluating people on the job they were hired for and then rewarding people fairly. It also means actively searching for and removing silly blocks and obstacles that inhibit work. A bank-wide pay-for-performance system? It won’t be a pretty sight. Chickens produce better eggs when they are healthy and fed a balanced diet. More feed only leads to fat fowl, not more eggs.