Consider the following scenario: A manager has two employees, Bill and Sue. Sue is a high performer who often exceeds expectations. She also keeps her calm when things don’t go her way.
Bill is a solid employee with valuable skills, but in recent years he has grown complacent. His work is OK, ;but far from great. He’s also difficult to get along with when things don’t go his way.
The manager knows Sue deserves a higher raise than Bill. The manager also knows Bill is going complain loudly if he doesn’t get the big raise he believes he should receive. In contrast, the manager knows Sue won’t complain if she doesn’t get all she hoped for.
Will this manager make the right long-term decision and give Sue more than Bill, even though it means dealing with Bill’s negative attitude? Or, does the manager decide to pay Bill and Sue the same amount just to keep things calm? If the manager knows they won’t have to justify their pay decisions then underpaying Sue and overpaying Bill is going to be the easiest way to go. That is, until Sue eventually quits out of frustration over not being recognized for her contributions and having to tolerate Bill’s poor behavior.
- Frustrating high performers while pleasing low performers. Most high performers want to be rewarded for their contributions. Eliminating a formal connection between performance and compensation is likely to demotivate these people. High performers will also be frustrated if they discover their lower performing colleagues are getting pay raises equal or higher to the ones they receive. In contrast, low performing employees may prefer a compensation process the does not link pay to performance. The result is a process that decreases engagement and retention of high performers while increasing engagement and retention of lower performers. This is not a good formula for increasing overall workforce productivity.
- Confusing simple with effective. Some companies have found that certain managers and employees initially find it easier to use compensation processes that have no link to performance ratings. But we do not know how these employees may feel about the process when they encounter pay decisions they do not agree with. And, conducting compensation without any link to performance rating could quickly lead to highly inequitable pay decisions.
Linking pay to employee contributions is a fundamental and common sense part of a high performance work environment — yet some people seem to think it is not worth the effort required to actually measure employee performance.