Conditional Pay Based on Key Performance Indicators

[NewGuy2005 53]

Does anyone have experience with a pay system like this?  This affects someone I know, not me.  This person is going to be given numerical performance goals to meet based on prior months' performance.  Their pay will fluctuate based on how closely they meet or exceed these goals.  The goals will be re-evaluated and reset every quarter.  This is not for a year end incentive bonus, but instead is used to continuously set and reset their salary.

Having been around a while, and having seen (or not seen) decades of yearly incentive bonuses that were based on poorly defined, or completely secret criteria, I am skeptical that this will be advantageous to the employee.  I've done some searching and have only found white papers and articles that are written to guide employers in the implementation of programs like this.  I suspect that this is a new phenomenon.  The cynical side of me says that this is nothing more than the re-branding of a piecework payment system.

Edited January 7, 2020 by NewGuy2005

[billvon 2,991]

1 hour ago, NewGuy2005 said:

Does anyone have experience with a pay system like this? 

I had a pay scale something like this when I worked as a consultant, but not as an employee.  Would be interesting to see this actually implemented and 1) how people liked it, 2) how pay compared to the usual merit-based raise system and 3) how employee turnover changed.

[airdvr 210]

Open your own business...you'll get a belly full.

[BIGUN 1,314]

9 hours ago, NewGuy2005 said:

Their pay will fluctuate based on how closely they meet or exceed these goals.  The goals will be re-evaluated and reset every quarter. 

You've heard of Management by Objective (MBO). This is a subset in which salary/payroll by objective.

For the granular details: https://exceltable.com/en/analyses-reports/calculation-kpi-in-excel 

 

[turtlespeed 220]

1 hour ago, BIGUN said:

You've heard of Management by Objective (MBO). This is a subset in which salary/payroll by objective.

For the granular details: https://exceltable.com/en/analyses-reports/calculation-kpi-in-excel 

 

Cynical me:  It does seem that it would promote gaming the system.

My assumption on the outcome would be increased production in the beginning, when implemented, up to a plateau, with occasional spikes.  It should take the lazy out.

[yoink 321]

It can work BUT the objectives need to agreed by both parties in advance, as well as being measurable. ‘Move the business forward’ is a shit objective, for example.

The employer also needs to be ready to soften the objectives if circumstances aren’t within the agreed parameters, as well as ensure the employee never receives less than a living wage.

I’ve long believed that footballers should have performance related pay.

 

 

It takes a lot of management time to do right which is why it’s not often done. 

It’s not new. We were learning about it in my HR masters in 2002.

Edited January 7, 2020 by yoink

[kallend 2,027]

Sounds like one more scheme dreamed up by an underemployed  whiz-kid with an MBA.

[mbohu 77]

5 hours ago, turtlespeed said:

Cynical me:  It does seem that it would promote gaming the system.

That seems to be the problem with just about ANY kind of incentive system. ANY system you implement, will in a sense be a game and have certain rules. Someone looking at the rules, will always be able to find ways to use the rules to their advantage, and that advantage may not align with the intended outcomes.
When I worked at a software company, their sales people got bonuses based on achieving and exceeding certain monthly sales goals. No bonus if they did not exceed the goal and then higher bonuses at different levels above the goal.
When it was clear they weren't going to meet the goal, they would delay all their sales towards the end of the month. Since they weren't getting any bonus (or only a small one) this month, they just dragged their feet so they could add the sales to the next month, ensuring that they would reach the goal and get a big bonus.--Not in the interest of the company, of course.

[turtlespeed 220]

57 minutes ago, mbohu said:

That seems to be the problem with just about ANY kind of incentive system. ANY system you implement, will in a sense be a game and have certain rules. Someone looking at the rules, will always be able to find ways to use the rules to their advantage, and that advantage may not align with the intended outcomes.
When I worked at a software company, their sales people got bonuses based on achieving and exceeding certain monthly sales goals. No bonus if they did not exceed the goal and then higher bonuses at different levels above the goal.
When it was clear they weren't going to meet the goal, they would delay all their sales towards the end of the month. Since they weren't getting any bonus (or only a small one) this month, they just dragged their feet so they could add the sales to the next month, ensuring that they would reach the goal and get a big bonus.--Not in the interest of the company, of course.

That seems like it would get you fired, rather quickly, if there was any attention at all paid to that employees history.  It would seem obvious to me that there would be something in the employee handbook that refers to that scenario.

[billvon 2,991]

42 minutes ago, turtlespeed said:

That seems like it would get you fired, rather quickly, if there was any attention at all paid to that employees history.  It would seem obvious to me that there would be something in the employee handbook that refers to that scenario.

If it was made clear that exceeding monthly goals was critical to the business - via company policy and incentives - they'd have a pretty good case for of wrongful termination.  "We were doing exactly what management wanted us to do - get some excellent months.  Of course some other months had to suffer."

It's important to set up a system so getting exactly what you incentivize people to do is a good thing for your company.

[brenthutch 444]

On 1/7/2020 at 11:18 AM, kallend said:

Sounds like one more scheme dreamed up by an underemployed  whiz-kid with an MBA.

You're  more of a "from each according to his abilities to each according to his needs" kind of guy.

Edited January 9, 2020 by brenthutch

[gowlerk 2,192]

On 1/6/2020 at 8:14 PM, NewGuy2005 said:

I am skeptical that this will be advantageous to the employee. 

No doubt. It clearly is not designed to be so. This is how high pressure annoying salespeople in places like Best Buy are compensated. You know the ones I mean. The ones that keep pushing the "extended warranty".

Edited January 8, 2020 by gowlerk

[brenthutch 444]

On 1/7/2020 at 11:18 AM, kallend said:

Sounds like one more scheme dreamed up by an underemployed  whiz-kid with an MBA.

Why do you denigrate/fear education?

Edited January 9, 2020 by brenthutch