Performance-based Remuneration

The recent recession once again emphasised the value of an excellent and well-known old business principle. In the good times, when businesses are making plenty of money, they don’t worry too much about this principle; but when the wolf is knocking on the door they’re suddenly very sorry that they ignored it. Then they diligently want to try and put it right, but in most cases it’s too late. The principle I’m talking about is performance-based remuneration.

Plenty of people know exactly what it is, and a lot of people even use it in the good times; certain professions will always stick to it regardless of the state of the economy. These include professions like estate agents and insurance consultants, who usually always work on a commission basis. That’s exactly what performance-based remuneration means in its simplest form, but most people think that it’s something that applies only to salespeople. Definitely not.

Other situations where you’ll find performance-based remuneration fairly regularly in all circumstances include, for example, directors’ performance bonuses at the end of the financial year. If this system works well for salespeople and directors, why not for other staff and managers as well?

It’s not always practically possible to apply it to each and every function in the business, but if we could, we would have staff who are worth every cent that they earn – and that’s what will make the difference for the company in tough times. In good times everyone looks good, but in tough times you can easily spot the passengers. And if they look like passengers in tough times, then you can believe me when I say that they were even worse in the good times. You just couldn’t see it amidst all the prosperity. Now they stand out like sore thumbs, and it pains you to pay them a fixed salary that they “aren’t earning”. The good staff who also didn’t get noticed in the good times are now shining like diamonds, but they’re also now suffering under the financial burden placed on the company’s limited reserves by the passengers.

What companies then usually do is start time-consuming and expensive staff layoffs in order to get rid of the passengers. It’s all so unnecessary and could be so easily avoided if you always handled your staff’s remuneration exclusively on a PERFORMANCE-BASED REMUNERATION BASIS, regardless of the economic conditions or the company’s financial position.

The philosophy behind performance-based remuneration or paying for performance is to reduce any job function in the business to measurable units so that you can then pay a pre-determined fee for that unit of work to be done.

Think about it like this:
If someone is paid for the time they work versus being paid for the results of that work, they are incentivised to do as little as possible per hour as they know that they need to stretch the work load to fill up the hours in the day. If however they are paid for the completion of a task at a certain quality standard, then they are incentivised to do as good a job as possible in the shortest possible time.

Performance-based pay links remuneration to individual achievement (or non-achievement) of predetermined outcomes and/or the performance of the company. It takes several forms, including performance-based changes to base remuneration and the provision of bonuses and other one-off type rewards.

Think about it: if your business had already switched over to a performance-based .........................

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