Pay for performance works — Here’s why


Posted by Kathi Enderes on November 12, 2018.

“Science confirms: people are not pets,” claims a recent article.1 The key finding of this piece was also the topic of the book Drive: The Surprising Truth About What Motivates Us, by Daniel H. Pink,2 which asserts that people cannot bribe others into doing what they want. Study after study has confirmed that attempts to motivate people with extrinsic rewards to perform better, work harder, or behave differently tend to be fruitless at best—and are often counterproductive. So why do so many organizations still use the old “pay for performance” moniker? Why do they spend hours and hours designing systems to evaluate performance and differentiate performance levels with rewards?

Back to Maslow
In the 1940s psychologist Abraham Maslow developed his theory of individual development and motivation: people have a hierarchy of needs that motivate their actions. They must address their basic needs before satisfying those at a higher level.

Maslow’s Hierarchy of Needs3

Source: SimplyPsychology, 2018.

Maslow’s hierarchy confirms that people are, in fact, not pets. Unlike people, pets cannot climb to the top of the hierarchy to achieve esteem or self-actualization, and are happy with the basic provisions that meet their needs. People require more—if an organization does not meet workers’ basic needs by providing them the means to achieve food, shelter, and comfort, it inhibits their performance and keeps them from progressing to broader levels of contribution within a team or the organization.

Fairness for trust
Adequate rewards, then, are the base of the contract between organizations and people. Rewards must instill a sense of trust that the system for evaluating and rewarding workers’ performance is fair and free of bias for organizations to address higher levels of Maslow’s hierarchy, such as a sense of love and belonging. The perception of fairness has been established as a cornerstone of effective talent programs4—no one will think a system is fair if a team that accomplishes outstanding results gets the same rewards as one that misses the mark.

If rewards are not adequate and fair, the workforce may lose trust in the entire approach and disengage—or worse, attempt to work the flawed system for personal gain. Fairness is a crucial part of the base of Maslow’s hierarchy of needs, establishing a feeling of safety and trust in the system.

Once this baseline is established, we can agree with Pink’s and Maslow’s assertions that people are more motivated by the intrinsic factors at the top of Maslow’s hierarchy–the why of the work, the broader good it can bring, the possibility of (nonmonetary) recognition, and the ability to fulfill potential. In fact, Bersin’s latest High-Impact Performance Management study demonstrates that the most successful organizations see workforce development and growth—not compensation and promotion—as the purpose of performance management,5 thereby motivating people through self-actualization (Maslow) and autonomy, mastery, and purpose (Pink).

Redefining performance and pay
Bersin’s High-Impact Performance Management study also identifies pay for performance as a driver of outcomes for the organization. In addition to viewing development and growth as their primary purpose, the best performance management approaches also differentiate and reward with pay for performance—just not in the mechanical, mathematical way of calculating a bonus from a rating.

These approaches broaden the concept of performance from volume to value, focusing not just on activities or widgets, but on skills acquired, team outcomes achieved, behaviors aligned with values, and contributions to the culture and the development of others. They also broaden the concept of rewards beyond typical monetary compensation like base and variable pay to include recognition, development opportunities, team awards, personally defined benefits, and experiences like meeting with company executives.6

Fostering “hyperperformance”
The concept of hyperperformance comes into play here. In 2014, Josh Bersin wrote the popular article “The Myth Of The Bell Curve: Look For The Hyper-Performers,”7 which asserts that bell curves in performance management bring mediocrity, that the associated rewards encourage hyperperformers to look elsewhere for better opportunities, and that others will often cruise along with that mediocrity.

Instead of a typical bell curve, consider a “Power Law” distribution, in which a small number of people deliver hyperperformance, a wide range provide good performance, and a smaller population represent the low-performers. Performance is not normally distributed in this system.

Power-Law Distribution

Source: Forbes, 2014.

This means organizations should aim to share the value created with the workforce commensurate with the value that each person and team contributes.

Pay for performance is here to stay
Superior performance still warrants differentiated pay as part of an overall performance and productivity strategy. But this should not be confused with the optimal motivators of performance—the intrinsic values that Maslow and Pink describe.

Organizations that view development and growth as the purpose of performance management are more than twice as likely than other companies to delight customers. Organizations that pay for performance are almost four times as likely to manage change effectively; they also have levels of workforce engagement that are more than twice as high.

The most mature organizations integrate these two mind-sets into a holistic picture of performance and pay. They support each person to do their best work, understand the value each person and team brings, and reward accordingly in a differentiated way. To inspire this level performance, leading organizations focus on enabling their peoples’ intrinsic motivators, with fair rewards to follow based on results.

Broaden your pay-for-performance approach for happier, more productive workers and better organizational results. This approach is most likely to meet the higher-level needs of today’s workforce—who indeed require more than their pets do to be happy and productive.

Kathi EnderesKathi Enderes, Ph.D., leads talent and workforce research for Bersin, Deloitte Consulting LLP, enabling organizations to transform work and the worker experience for increased organizational performance.


1 “Science Confirms It: People Are Not Pets,” NYTimes.com / Alfie Kohn, October 27, 2018, https://www.nytimes.com/2018/10/27/opinion/sunday/science-rewards-behavior.html.
2 Drive: The Surprising Truth About What Motivates Us, Daniel H. Pink / Riverhead Books, April 2011.
3 “Maslow’s Hierarchy of Needs,” SimplyPsychology.com / Saul McLeod, May 21, 2018, https://www.simplypsychology.org/maslow.html.
4 High-Impact Talent Management research, Bersin, Deloitte Consulting LLP.
5 High-Impact Performance Management research, Bersin, Deloitte Consulting LLP.
6 High-Impact Total Rewards research, Bersin, Deloitte Consulting LLP.
7 “The Myth of The Bell Curve: Look For The Hyper-Performers,” Forbes.com / Josh Bersin, February 19, 2014, https://www.forbes.com/sites/joshbersin/2014/02/19/the-myth-of-the-bell-curve-look-for-the-hyper-performers/#7cc24e3e6bca.
8 High-Impact Performance Management research, Bersin, Deloitte Consulting LLP.

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