Minimising the unintended consequences of performance pay. By Sylvia Doyle, Reward First People Consulting

I agree that too much time is spent focusing on the design of PRP and not enough on implementation. However I believe there is a broader issue that too many organisations consider the topic of PRP in isolation.

When a client want to discuss PRP I always challenge them to view it through an OD lens. Doing so allows them to step back and be clear about what they are trying to achieve. It allows them to consider what part (if any) PRP might play among other required changes, and the interdependencies between these. It also encourages a more disciplined approach to implementing changes.

It is my firm conviction that PRP programmes implemeted as part of such an approach, are more likely work and meet the organisations needs.

Sylvia and Thomas - to the contrary, I believe far TOO much time, effort and cost is spent on both the design and implementation of PRP, and far too little time is spent on fundamentally questioning and researching why do PRP in the first place. What's the evidence that PRP does what it claims? I have searched and found little evidence for the efficacy of PRP and indeed of its sister Performance Management! I continually refer back to a few key texts on the topic of motivation and reward, namely W E Deming, Alfie Kohn and Dan Pink - amongst others.

Firstly, Deming shows us that the organisation has to be seen and studied as a system. When you look at the performance of the organisation, 95% is due to the system, i.e. the way the work works, and less than 5% is due to the individual employee. So why focus all the effort on the employee rather than system performance?

Secondly, if performance is determined by the system, then the role of the leader and manager is to act on the system not the people. Systems Thinking interventions continue to prove Deming (see his Red Bead experiment if you want evidence) and Duran et al, to be wholly correct.

Thirdly, the research (by Kohn, Pink et al) shows clearly that you cannot and should not motivate, or engage nor empower people. These are nouns not verbs. People feel motivated, engaged and empowered as a result, as an outcome of the things we do WITH rather than TO people in the organisation. This is not to say that I cannot make people do things in the short term by offering rewards and/or punishments - of course I can make you do something, but only so long as the rewards and punishments remain. take these away and performance drops dramatically. I cannot get people intrinsically motivated for the long term (i.e. where they want to do something) by doing rewards and punishment. Money and rewards do not motivate people (many studies show this) - if I promise to double your pay will I get double the effort or productivity? If I pay you 145 times more than me, will you deliver 145 times the outcome? Of course not! However, research shows the converse that if I pay you less than the going rate for a job, then clearly you will feel demotivated and probably choose to either complain, strike or simply move on.

I'm merely challenging the reward, and indeed the whole HR and business community, to go to the research that's already there, to truly go back to the basics, to challenge fundamentally the current paradigm of thinking about motivation, rewards and punishment, and then change your thinking.  

I am astonished - I started reading the note from Andreas and thought I had opened one of my own, unpublished, assessments of PRP - I have argued with HR and Reward professionals and with business leaders about the absence of evidence for return on investment on PRP. I have seldom found common ground.

I think I left a comment on another forum posting to the effect that it seems fundamentally odd when it comes to reward for business leaders to have PRP and bonuses to encourage executives to do the "right thing". Do we really want leaders who will only do the "right thing out of material self interest?

But ....

... we live in society as it is - and I've reluctantly come to recognise that we have these schemes because employees see them (in the UK) as an indication of the value an organisation places in staff. Failure to provide a PRP scheme of some kind suggests to employees that (because other companies do appear to reward performance) their own employer does not value higher levels of performance. We have learnt to take money as a signal from our bosses of what is important. The challanges of creating effective reward and performance models for the public/not for profit sectors where bonus and PRP is (much) less common seems to support this conclusion.

So our reward framework in general, and these schemes in particular, become indicators for the direction of travel for British employees but

(1) as Andreas says, don't expect return on investment

(2) don't assume PRP schemes translate well into other business cultures - even in mainland Europe.

To move forward we need the wider perspective, we need to ask what's the point and what's the evidence but above all we have to have a better solution that feels intrinsically appropriate.