LeapComp - Sales Performance Management Blog

I overheard a conversation today about employee pay, with the premise being, what should come first, performance or pay?

One of the gentlemen in conversation is a small business owner with about 35 employees. He was quick to answer his own question – “of course, performance should come first, but my (employees) don’t get this.”

I bit my tongue and stayed out of the conversation. But this seemingly shallow exchange got me thinking that indeed, someone could dispute this notion depending on how they view base salary and variable pay.

In the case of base salary, pay comes before performance. Sure, the employee receives a paycheck only after having performed the work. But the level of base salary is contingent on the skill this employee brings to the table. So in this sense, pay comes first. Over time the employee demonstrates a level of proficiency that either confirms or questions management’s initial expectations. Come the focal review, management may decide to place another bet by giving a merit increase to the employee. But there’s no guarantee that the employee will perform in line with management’s now higher expectations.

With variable pay, performance comes first – whether it’s the company’s performance or the employee’s against a set of objectives. Management can provide an advance or draw, but if the employee does not cover the draw, the pay becomes surrogate for base salary.

If the employee expects, or feels entitled to, a bonus, this is a problem. Similarly, there’s a problem if the employee feels entitled to a merit increase, or even continuance of his/her current base-salary rate when failing to meet management’s initial expectations of proficiency. Neither side wins in this scenario. Management feels put off that the employee doesn’t appreciate his/her compensation and the employee is disengaged, bitter, and possibly starting to think about getting another job.

Maybe I should have intervened. Then perhaps the small business owner could answer his employees’ question, and also appease them, by saying, “yes, you are right – pay does come first in the form of your base salary.” He can then rather seamlessly and without guilt or conflict, revisit the performance expectations inherent in the variable pay program.

Contact Scott Barton at scottbarton22@gmail.com