Employee bonuses: Does performance improve with pay raises?
When either party — the employer or employed — takes a selfish view of compensation, they become unnecessarily antagonistic. (Shutterstock)
How much do you want to earn? I’m sure it’s more, maybe even substantially more, than you’re currently earning, which raises the question, “How can you maximise your pay?”
Compensation should be a reflection of an employee’s value to the company. Frederick Taylor said it best over a hundred years ago, “Maximum prosperity can only exist as a result of maximum productivity.”
I’m a firm believer that as value goes up, so should the pay. Taylor was trying to say: For you to put more money in your pocket, you have to put more money in the payer’s (company’s) pocket.
We’ve been led to believe that the bonus scheme should do this. But, does it?
“I have no idea why I was offered a contract with a bonus in it because I promise you I will not work any harder or any less hard in any year, in any day because someone is going to pay me more or less,” said John Cryan the CEO of Deutsche Bank.
I’m inclined to agree with this thinking. I’ve asked many CEOs, “Have you noticed an impact on your company’s performance based upon paying or not paying a bonus?” After a brief moment reflecting on the question, they shake their head confirming it hasn’t made a difference. Worse, the look in their eye questions: “Then why am I paying a bonus?”
The existing performance pay model doesn’t work. Even worse is the unintended shift of focus away from company growth and profitability towards individual KPIs stemming from the “I am here to do my part” mentality.
A senior leader recently told me, “We used to all focus on the customer, now we focus on our divisional KPIs.” While KPIs are supposed to be indicators of how the company is progressing towards its overarching goal, they’ve in turn become divisional, departmental, team even individual goals. Consequently, bonus schemes are rewarding activity not value creation.
Additionally, the executive expectation is that a robust performance management system will make the company work harder, become more productive and ultimately more profitable. But as John Cryan confessed, it doesn’t.
Yes, I am saying you should throw out your performance management system and bonus scheme as they presently exist. Instead we need to return to Frederick Taylor’s thinking, which is illustrated by: “If you and your workman have become so skilful that you and he together are making two pairs of shoes in a day, while your competitor and his workman are making only one pair, it is clear that after selling your two pairs of shoes you can pay your workman much higher wages than your competitor who produces only one pair of shoes is able to pay his man, and that there will still be enough money left over for you to have a larger profit than your competitor.”
Collectively increasing productivity is the way to earn more money. Scientific management has for its very foundation the firm conviction that the true interests of the two are one and the same. The prosperity for the employer cannot exist through years unless it is accompanied by prosperity for the employee, and vice-versa. It’s not only possible it’s necessary to give the workman what he most wants—high wages—and the employer what he wants: a low labour cost.
When either party — the employer or employed — takes a selfish view of compensation, they become unnecessarily antagonistic. Compensation should be a reflection of an employee’s value to a company. As value goes up, so should pay.
It should be self-evident that maximum prosperity for the employer, coupled with maximum prosperity for the employee, ought to be the two leading objects of management.
Unfortunately, few companies or employees look at pay this way. Instead of working hand-in-hand to build value and increase pay accordingly, employers feel they’re paying too much and employees feel they don’t get their fair share. This leads to competing interests, when a collective effort and mutual interest is the solution for both parties.
I’m sure this isn’t popular with every reader, but maximum productivity is the way for both the company and employee to enjoy maximum prosperity. The way to make more money is to add more to the kitty.
By Dr Tommy Weir
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