A recent NY Times article about Gravity Payments shared a great, real-life story of why not having a pay for performance strategy, and quite frankly paying all employees a minimum annual salary of $70,000, will not retain your highest performers or result in a growing bottom line.
In this case, Dan Price, a thoughtful business leader, wanted to show his commitment to new employees with a minimum salary base of $70,000. While well intentioned, the result is that he lost his high performing employees, lost customers, increased staffing costs, created financial risk for the entire company and its customers, and resulted in a new lawsuit.
While it’s good business to have nurturing, caring business leaders, we also need to think about long term effects of compensation strategies and do what’s right for the company, the employee base, and the customer base. Paying people too much is a recipe for failure. You are incurring higher costs, reducing profit margins, and de-motivating high performing employees.
This is why a pay for performance compensation strategy can be a key to success. For example, as SVP of Google's People Operations Laszlo Bock notes in his book Work Rules!, Google’s policy is to pay unfairly - you should pay employees what they're worth, not for the job they do.
Ultimately, you can’t afford to pay more than someone is worth. Do your market comparisons and know what an employee’s value and contributions are to your organization, then pay them to perform. Reward and engage your top performers by knowing and recognizing their contributions and aligning those with their compensation. This is the only way to pay your talented staff fairly and competitively while motivating them to meet those stretch goals that will benefit the team, the company, and your customer base. Visit PeopleFluent.com to learn more about the 6 Keys to Success in Pay for Performance and how to Get your Pay for Performance Strategies Right.