On linking pay and performance (part 1)

“If you want people motivated to do a good job, give them a good job to do”

F. Herzberg⁠1

In previous articles I have explored approaches to managing performance in complex environments and offered some insights and ways forward*. These are alternatives to the industrial management complex which assumes that all staff are inherently lazy, need supervision to ensure they do the work that is needed, and if all else fails HR are on hand with improvement plans, training and, in extreme cases, sanctions. Whether we subscribe to this philosophy knowingly or unknowingly we’re complicit in its promulgation. Perhaps we don’t have a choice. It’s the model we are taught in our early years, in schools and education, across society as a whole. Parent/child, teacher/student, officer/soldier, manager/employee. We’re taught there is a natural order of things and that the most moral people are those at the ‘top’ of their respective tree, their position being the self-justifying evidence of said fact.  

The way we tend to treat our fellow human beings in the workplace is largely based on an archaic and outdated view of human nature and motivation. It’s the one we see in the welfare benefits system in the UK which is founded on conditionality and sanctions for those transgressing tight eligibility criteria. The whole system assumes that humans are fundamentally lazy and to be distrusted, in need constant extrinsic motivation to act. Being out of work, they are seen as morally weak (again, by dint of their position in society) by those designing the system of ‘support’. It is little different from the experience many employees have when they are in work. 

The myth we are told when we are at school is that performance is down to us as individuals and to us alone. It’s the smart people who find the answers, and they do so on their own. This worldview of agency and causality assumes that success is an individual reward for excellence, one well deserved. In a few clearly solo endeavours this may be the case. But just as a Serena Williams takes the plaudits she acknowledges her team and those around her who support her to win. The individualistic view doesn’t allow for the recognition that, perhaps, there are a wider set of circumstances at play which are outside the control of the individual. People may lose their jobs as a result of a factory closure because a decision made at a HQ in a different country or because of a financial crash. Neither of these are within the gift of the individual to prevent. The circumstances are always complex and what happens is always a product of such complex systems and not simply due to the actions of an individual ‘utility-maximising’ human being tending to their own needs in isolation from others. 

Such confusion manifests in the workplace. We treat employee performance as completely within their gift, and by extension that poor performance is a choice, is a disease that needs to be cured. Sure, the actions of a few can sink a perfectly viable business, and in other cases clear actions by an individual have a great benefit, but that is like saying that you and you alone are responsible for driving safely home at night. You’re discounting the work of those that built the car and the roads, maintain them, who keep the street-lights on, the food you ate to give you the energy to focus, those that taught you to drive, the behaviour of the other road users, and so on.  

In many respects it’s hard to believe there remains a place for performance-related pay outside of  – potentially – a small number of specific industries. Twenty years ago (in 2003) the Institute for Employment Studies concluded that “whilst ⁠2many organisations (and indeed the government) in the 1980s and 1990s saw individual performance-related pay as a strategic lever to effect cultural change, it seems as if the interest in such schemes is now past its peak.”

And yet they continue to exist. We over-constrain employee’s performance through a regime of management target-setting and appraisals. At its worst, we then decide that the best way to motivate our ‘resources’ of human beings is to use money. Take it away and offer it out in parcels, such as zero-hour contracts, where we have people hanging on hand-outs like Pavlov’s dog waiting for the bell. Or, in the office-based world of the knowledge economy, use it as incentives for meeting arbitrary targets. In doing so, discount completely the possibility that your employees are intrinsically motivated, feel a sense of higher purpose, of solidarity with their peers, or are driven by motivators other than financial ones. 

I should be explicit here: if you work processing widgets on an assembly line perhaps you can have a form of remuneration based on piece-work. I certainly experienced that in a factory environment. The 2003 IES study noted that “you can only really effectively pay performance if you can measure performance, and do it in a consistent manner⁠3”. In an office we are working in a complex environment, by which I mean that performance is a result of the systems in place. Which then follows that cannot be solely responsible for your performance. How can you quantifiably measure performance when your job involves, for example, multiple people and stakeholders, coming up with ideas, spotting opportunities, developing relationships, writing content, influencing others, serendipity?

There is no evidence that a move towards individual performance targets actually works in practice – in fact, the evidence that exists shows it makes things worse whilst absorbing our time and attention in activities that add no value to the real work and purpose of the organisation. This is because we’re over-constraining a complex system. We’re asking people to do things which make no practical sense in the context of their work. What are the logical consequences of this? I’ll explore these in part 2.

*For the sake of clarity I am not offering this as a judgement against the use of such measures in the private sector as this lies outside my personal experience. However my reading of corporate failures such as Enron, the Sackler dynasty, Carillion. Lehman Brothers and the like is that at the heart of them is misaligned incentives, of which remuneration is the most pernicious. I have worked within performance related pay schemes in the public and third sectors and have seen how people who are drawn to these sectors and largely intrinsically motivated have that crowded out by an extrinsic rewards policy. 


1 Frederick Herzberg in: Randall B. Dunham (1984), Organizational Behavior: People and Processes in Management. p. 118

2 https://www.employment-studies.co.uk/system/files/resources/files/mp18.pdf

3 https://www.employment-studies.co.uk/system/files/resources/files/mp18.pdf

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