Why Pay-for-Performance Sucks

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Scenario: "We should pay people based on individual performance. That'll motivate them to produce. Yay!" Most companies think:

  1. Money motivates people to rock.
  2. More money = higher performance.

Yet, think back to when you kicked-ass-and-took-names.

What motivated you to do so?

  • a) extrinsic rewards
  • b) intrinsic rewards

Most likely always: (b) intrinsic rewards. Instead of worrying about what you'd "get" for accomplishing: _____, you cared more for those intrinsic rewards -- like:

  • accomplishing something great
  • kicking arse for your team members
  • setting company records
  • serving the world

You couldn't care less about what you "got." Pay-for-performance schemes undermine intrinsic rewards: Instead tapping your people's inner passions to accomplish something super-fab, you distract them with the: "Oh! Here's what YOU can get!" extrinsic carrot awards. That creates short-term views, temporary results, and superficial decisions.

People Perform Worse When Motivated By $$$

Conventionally, you'd think: "Hey, if I motivate them with: __________, they'll achieve: __________." But if you've read Trizoko, you know what sounds "common sense" in business is rarely correct. According to Researcher Alfie Kohn:

At least two dozen studies over the last three decades have conclusively shown that people who expect to receive a reward for completing a task or for doing that task successfully simply do not perform as well as those who expect no reward at all.

Managers who motivate with money forget what taps human's biggest motivator: Their inner-selves. When you wave a carrot in front of Johnny:

  1. Johnny focuses on the carrot.
  2. Johnny forgets his inner-motivations.
  3. Johnny forgets the task-at-hand.

According to Kohn's studies:

The more a manager stresses what an employee can earn for good work, the less interested that employee will be in the work itself.

The Solution? Do a profit-sharing plan.

Studies show profit-sharing produces much greater productivity than compensating individually. Why?

  • It compels individual team members to focus fully on the task.
  • It generates teamwork and cooperation.
  • It taps people intrinsically: "I want to !@^^%^ rock for my team."

"But what if some people start slacking off?"

You'd think so, but most don't. People will pull their own weight because of perceived peer pressure -- according to Stanford's Jeffrey Pfeffer. And if they don't, show them the exits. At Trizzy, here's what we do:

  1. Team members can choose to vote off others who provide no value to the team. Because -- hey -- if you're not providing value, you're dead weight who's consuming "our" resources.
  2. They also choose to divy up the profits according to how they see fit.

That ensures (1) teamwork, (2) no viruses that will destroy the team, and (3) productivity-to-the-max on the task-at-hand.

Profit-sharing = much, much sexier.


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Posted on April 19

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