It doesn’t have to be a dollar. It could be fifty cents, seventy-five cents or any other number. This article highlights the dangers and risks of failing to pay for performance (or giving everyone the same pay raise) and why it’s a huge, missed opportunity.
Variable performance in groups is a real thing. For this article to make sense, we need to start with the premise that given any group of people above five, and arguably more than three, there will be variable performance. Humans are not exactly the same from person to person as we all have different motivations, priorities, work ethic, etc. Even in top performing professional sport teams, there will be variable performance relative to other members of the team, which may change over time or in different situations.
Accepting variable performance exists among people, why do we still have managers who want to give everyone the same pay raise, not including unionized locations or other situations where it’s a contractual requirement? I’ve posed this question in dozens of management training courses I’ve conducted around the world and attendees always know the answer – because it’s the easiest course of action. Giving every person the same pay raise is the simplest and easiest thing to do and could even create the illusion the manager and/or the company are fair or egalitarian, but easy doesn’t mean it’s the best or right way, and it can create huge risks for the manager and the company.
Differentiation requires assessment. If someone offered you a free, single pick among ten televisions, all of differing quality, size, features, and expense, would you randomly choose just any television? Of course not, you would assess the differences between televisions and choose the best one for you. That means in order to differentiate, you must first assess. To determine if some people deserve a larger pay raise than others, a manager must first assess each team member, hopefully objectively and fairly, and this is the barrier that often leads to “just give everyone a dollar,” because giving everyone the same amount requires no assessment, real thought or effort. But herein lies the danger. Let’s look at the potential ramifications of giving the same versus performance-based raises:
Choice 1: Give everyone the same pay raise. Keeping in mind some people worked harder, or more efficiently, or were more committed to safety or providing top-level quality, who is the only group of people who might be unhappy if everyone received the same pay raise? It won’t be your worst performers as they did the least. The only group who could be upset will be your best performers.
Choice 2: Pay for performance and give your best people the best raises. In this situation, who is the only group of people who might be unhappy if you paid for performance (assuming the assessment was done objectively and fairly)? The answer is your lowest performers.
Given a choice between potentially upsetting your best performers or worst performers, which would you choose?
In conclusion:
- Differentiating among people first requires some type of assessment. Assessments do not, as some people may think, need to be difficult or complicated. There are very simple, straightforward, quick and cost-effective options all the way to extremely complicated ones. The trick is to find the best one for your organization and assess your people so you can differentiate their performance and gauge their relative importance to your company.
- Given the choice of potentially upsetting your best performers or possibly upsetting your worst performers, which one would you choose? The answer is obvious and indisputable. In the current challenging environment of labor shortages and difficulties with retention, using the finite resources available for pay raises wisely is a critical component of good compensation management and one of the most powerful levers you can pull to help you win the war for talent.
At Full Scope Insights, we offer Human Capital Consulting services tailored to your business, helping you to make sure all your Human Resources programs and initiatives are fully aligned with your company’s business goals. Human Capital is likely your single largest or second-to-largest cost line. Investing in your people yields real dollars that impact your bottom line. Contact us, we’re here to help.
Huei-Ren “H.R.” Pan
Partner & Head of Human Capital
Full Scope Insights