Why would we compensate employees in a manner that discourages productivity?
Consider the following example. Professionals in a peer group each have similar backgrounds and between five (5) and eight (8) years of experience. They all perform similar assignments (tasks) that for simplicity’s sake are assumed to have the same degree of difficulty. The total compensation (salary plus bonus) in this peer group currently ranges between $85,000 and $110,000 per year and each employee has a level of compensation related to their productivity; higher productivity corresponding to higher compensation.
Assume that the least productive employee works 150 tasks per year on average with a total compensation of $85,000. The most productive employee works 300 tasks per year on average for a total compensation of $110,000. Thus, the most productive employee is about twice as productive as the least, but without receiving twice the amount of compensation.
Considering the total number of tasks that each employee is able to complete in a year, the least productive employee is paid an equivalent of about $567 per task and the most productive employee is paid an equivalent of about $367 per task. Thus, the least productive employee is actually being paid about 1.5 times more per task completed.
The following plot has been generated to illustrate this point. In this plot the least productive employee is used as a bench mark. Employee productivity is plotted along the horizontal axis with 100% representing the least productive employee. The corresponding number of tasks per year is represented on the top of the graph for comparison purposes. The vertical scale is a measure of task labor values paid to an employee in comparison to the least productive employee’s task labor value. Corresponding annual compensation and task labor values have been placed along what I call the Productivity Discouragement Curve to illustrate how each decrease with increased productivity.
In essence, managers using the employee compensation model described above are tying task labor values to employee productivity and are lowering these values with increased productivity. The result is a very power negative unspoken message that acts to discourage all employees from increasing their productivity. Of course, some employees will act against the Productivity Discouragement Curve and work harder to get more total compensation. Their level of productivity will be a function of their personal drive, work-life choices and personal needs regardless of the discouragement, but we are dampening their enthusiasm. Why?
What would happen if we didn’t use the Productivity Discouragement Curve as the basis for our compensation models? What if instead we decided to pay the same task labor rate independent of productivity? Or, what if we actually increased the task labor rate for higher levels of productivity?
The result would be an unleashing of employee productivity at all levels. However, such an approach would be very difficult under our present time-based employee performance measurement systems. However, it would be easy and straight forward under a task-based system, such as the Tasks-Completed-Correctly strategy as described in The Optimum Manager.
How would a Tasks-Completed-Correctly strategy that actually encourages productivity work in your business?
Glen R. Andersen, ScD, PE