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Do you subscribe to 'pay for performance' or 'pay for potential'?
I read an interesting FastCompany article this morning that talks about how 'pay for performance' doesn't work for Gen Y. It then discusses the concept of 'pay for potential.'
Which of these viewpoints does you subscribe to, and why?
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3 Answers
Caty,
I read that same article and candidly I think they present the two as being completely disparate, but they aren't.
Pay for performance properly done looks at where you are relative to the market for your position, your performance and your performance trend.
I think as the article points out annuitized pay increases with minimal distinction between the compensation opportunities for levels of performance have minimal value other than "fairness" and "consistency".
On the other hand in terms of paying for "potential" what does that mean?
I believe that if you have a comp structure with a market "midpoint" most people shouldn't see their base salary advance beyond that. If they do it should be very slow. Above market compensation should be reserved for above market performance and tenure doesn't equal performance.
On the other hand there is something to be said for sustained performance. A single year doesn't give me enough time to evaluate your true performance or potential.
I believe in advancing people to "market" as quickly as the business can afford it and their performance warrants it.
I used to use a technique called variable timing/variable amount, it allowed me to reward top performers faster and more than others- of course it drove the Accounting people crazy because it wasn't "linear", but I wasn't and am not in the Accounting business...
The ancient (not new) Pay for Potential concept focuses on theoretical input KSAs while Pay for Performance recognizes actual output results. Performance rules, in my book.
It's not how handsome the horse is and how graceful their stride but their track record that counts. Appearance does not determine substance. The prize is not the wrapping but the content of the box. Manner and style do not define result or output. What is theoretically possible does not precisely match what actually happens.
That said, skill-based pay is the trend of the future, with job titles being replaced by competencies and skill sets easier to apply to actual work needs. Fast-moving firms are stifled by the arbitrary bureaucratic limitations and restrictions of organizational charts and vertical pyramid pecking orders.
The linked article is more a book-promotional piece and an argument than a research paper. It assumes that if you bring more competencies to the job (leaving aside who decides that rather critical point), you should be paid more. The minor question of whether your competencies actually result in superior work output results is conveniently omitted. It contains assertions without foundation, much like many of its referenced sources.
The pay progression topic touched on by Mark is a completely separate subject worthy of many articles and a few books, some of which I’ve written.
Good question, Caty. I couldn't agree more with both Mark and Jim.
Jim says, "The ancient (not new) Pay for Potential concept focuses on theoretical input KSAs while Pay for Performance recognizes actual output results. Performance rules, in my book." This statement is spot on. My experience validates Pay-for-Performance as a solid comp program that can bring out the best in people, thereby, reinforcing improved productivity.
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