w10-The Success of Failure: The Paradox of Performance Pay

background

good

belief in performance pay is akin to an urban legend

public and private organizations claim to give great deference to merit; the civil service system is even named for it.

discontinuity exists

not be as desirable, as easy to implement,

pay-for-performance plans in the federal government has malfunctioned

Practical Experience

disappointing; indeed, the consequences are often counterproduc- tive

whatever the assumed virtues of contingency pay, administrators find themselves unable or unwilling to use it in a robust manner.

compensation plans seldom provide enough resources to reward exceptional employees without unfairly penalizing valued satisfactory ones

although pay for performance repeatedly proves to be unworkable, government is still reluctant to abandon it.

pay clearly matters. But as experience demonstrates, it is difficult to link compensation policies to desired results;

who gets how much for what are insidiously complicated issues

Too good to be true, pay for performance might be “a wonderful theory

performance pay promoters— tellingly—have not sought to apply the technique to presidents, members of Congress, agency secretaries, or the uniformed services.

Policy Findings

Preconditions—trust in management, a valid job evalua- tion system, clear performance factors, consistent and meaningful funding, and accurate personnel appraisal—must be present

Employees may “eventually come to see merit pay as a kind of punishment

17% of companies believe that their performance pay plans are “very successful”

ideal conditions are rarely met in empirical reality

found that finan- cial incentives were not related to the quality of results.7
can actually produce its opposite

conditions for MP

  1. pay for performance runs well if (a) employees have to complete one well-defined task, (b) the output is clearly measurable, and (c) the result can be attributed to one person’s efforts.
  1. effective if (a) employees work primarily for cash and (b) they care about absolute pay levels.
  1. They operate best when employees know what to do and whom to serve

• focus on the short term at the expense of the long term,
• encourage mediocrity by setting limits on expectations,
• reduce creativity and risk-taking,
• promote self-interest above other interests,
• destroy teamwork because it increases dependence on individual accomplishment,
• generate counterproductive, win–lose competition for merit monies,
• encourage sycophancy (“do-as-I-say performance pay”), and/or
• generally politicize the compensation system (Berman, Bowman, West, &
Van Wart, 2009).

Government agencies should use incentives sparingly and rely instead on “intrinsic motivators” such as goal setting and feedback.

Political Reality

as if management was as straightforward as athletic entertainment

Finally, all these explanations reflect a deeply ingrained belief in pay for performance, one encouraged by vendors promising that however difficult the technique may be it nevertheless can be done with their guidance.

incentive plans continue to experience implementation issues.

difficult to overstate the attractiveness of pecuniary incentives in a political arena

Success is not required, failure is overlooked, and new programs are inaugurated with little attention to agency histories or systematic studies.

discussion

Although pay for performance seems theoretically and intuitively appealing, the real- ity is very different for many organizations

environment

• A supportive organizational culture
• Fair-minded, well-trained supervisors
• A system of checks and balances
• An ongoing system of program evaluation
• A rigorous performance appraisal system9

Contingency compensation, in brief, is neither quick nor easy.---not a panacea, but a part

PDP:“is likely to be of little benefit to organizations with serious performance problems and may actually be harmful”

performance pay can become a substitute for good management. Manipulating compensation packages is far easier than designing meaningful jobs and paying everyone fairly.

CONCLUSION:

civil service reform is simply inappropriate for effective public human resource management

pay-for-performance programs may well have become an urban legend.

the more that performance compensation is discredited, the more that such testimony is ignored

lessons:

Successful compensation plans, based on practical experience and research findings, are exceptions that prove the rule that performance pay is hazardous to implement;


Even an unusual, well-funded program is subject to the legacy of govern- mental below-market compensation strategies


Contingency pay approaches can provide either limited or substantial mana- gerial flexibility in rewarding performance;


Performance pay can result in politicization of the civil service and manipu- lation of employee appraisals, a problem at the center of the Justice Department’s termination of U.S. attorneys in 2007.


Money is important, but not in attempts to induce better work; perhaps pay is most effectively used in recruitment, a human resource function with mar- ginal long-term bearing on performance.


Monetary incentives, as mentioned earlier, may be more productively employed in gain-sharing programs than for rewarding individuals

Meritpaycontingentonperformancemaybeefficaciousandempoweringforself-directed employee groups or gain-sharing programs where collaboration