Breaking Up is Hard to Do: Pay and Performance Need to Consciously Uncouple

 

pay for performance

Pay for performance is a popular mantra in business today. And with good reason; it’s a sound concept to pay top performers more than those who aren’t performing as well.

But while we want to reward top performers, we also want to make sure managers maintain their ability to use discussions like the annual performance review to effectively coach employees and influence their future performance.

Pay for performance isn’t necessarily a problem, but an annual performance review that focuses on compensation is.

When you marry a discussion about a pay raise with one about performance, the conversation becomes overly focused on compensation and the performance aspect is overlooked. The employee stops reflecting on his or her achievements and how to help achieve the company’s goals, and instead focuses on negotiating a higher pay raise. Thus, despite the best of intentions, the performance evaluation becomes about the dollars – and about the dollars only.

What’s more, the annual performance review is the one time of year that a manager can establish a formal checkpoint with an employee to discuss what the employee is doing well, where he or she needs to improve, what the company’s goals are, and how the employee’s personal goals line up to those. By tying the performance review to pay, the manager loses the opportunity coach the employee and make sure future behavior is aligned with the company’s goal.

This is why we recommend that pay and performance split up.

A Conscious Uncoupling

Maybe it’s kinder to use Gwyneth Paltrow’s words and suggest that pay and performance need to “consciously uncouple.”

Think about it: It’s important for an employee to have a discussion about pay, particularly in an organization that espouses a pay for performance model. It’s equally important for a manager to have a discussion with an employee about how his or her individual performance affects the company.

But everyone – the employee, the manager, the organization – is better off when the two aren’t together.

When you couple an open-ended discussion about performance with a finite discussion about a raise, you’re not driving employee behavior that can actually help your organization achieve its goals.

Instead, by separating these discussions, you’ll create two different processes:  one that rewards employees for what they’ve achieved to date and another that encourages coaching, development and accountability to help keep the organization moving forward.

Going Their Separate Ways

Consider how you might split the compensation discussion and performance review in two.

Maybe you can conduct the annual pay discussion at a different time of year, to focus the performance review on performance and not on compensation. You could start the discussion by telling the employee what the goals of the company are, and how he or she fits in. You could explain to him or her specifically, “Here’s how you’re doing in terms of helping us move in this direction, and here are some other things that would be helpful for you to think about so we’ll be able to get there even quicker.”

This might be a way to change the annual review from an administrative task in which the employee only hears about compensation to a strategic conversation, and in the process help employees understand how their personal success ties to the success of the organization.