The concept of “paying for performance" has been around a long time, but the results of implementing this strategy have varied. It's an easy concept to understand—pay people when they produce results!—but it's not as easy to implement.
While we did conduct them, performance reviews weren't a priority when I launched my company, and they still weren't when we were fueling our growth. At the start of this year, it became clear performance reviews were ineffective: The process was confusing to managers, resulting in delays or missed reviews, and the reviews provided little value to employees. Rather than taking old-fashioned, paper-based review processes and digitizing them, we wanted to efficiently link pay with individual goals and company alignment.
Pay for performance is a concept that's so straight-forward, it's easy to dump it into a business. However, I’ve learned that a hands-off approach contributes to the failure rate. Rather than throw this system into the performance structure at our company, we defined a framework that will take a number of quarters to fully implement. It will certainly need some refinement along the way, but it will ultimately provide employees with valuable and timely feedback while rewarding behavior with bonuses closer to the time they occur. Here's our plan:
- Company Alignment: In my experience, every company, large or small—and especially the truly entrepreneurial ones—needs to have all its people and processes driving in the same direction. This means making sure people are always aligned around common goals, not just when it's convenient. It also needs to happen at all levels in the company, from the most junior person to the executive team.
- Goals Culture: Once aligned, people need to be driving on a daily basis toward SMART goals, which cascade from each department and then, ultimately, are unified within the scheme of company goals. I’ve found that understanding the difference between “tasks” and “goals,” and boosting the ability for your staff to think in this way, is critical.
- Coaching and Career Development: While my company works toward clear goals together, the employees need to establish a vested interest in the process by integrating their personal goals with their goals as an employee. Career development is the missing link that provides personal direction and commitment to the goals of our organization.
With this framework in mind, a true pay-for-performance culture is theoretically attainable and sustainable. We are eager to apply this theory and see the results. Check back with me as my company goes through this process, learns the ins and outs, and implements a truly productive pay-for-performance structure!
Note: Looking for similar content? Check out David's blog!