Pay for Performance – The Future of Work?

The challenge today with compensation based primarily on a fixed salary is that employees will naturally estimate the level of effort required to stay within range of a positive employee ranking. The remainder of the time will be spent on breaks and life balance activities, among others. While it is healthy for an employee to take periodic breaks, the current process is inefficient since it is founded on guidance from management and some employee assumptions around the flexibility of those expectations.

Furthermore, there are too many technologies and other distractions available to employees to take them away from their work. Of course there is the Internet, but as companies compete to attract and retain top employees, they offer a number of other amenities including game rooms, full service cafeterias, and social lounge areas, which attempt to enhance the office experience but can also detract from focus and deep work. Based on a study performed by TechnologyAdvice, these perks are very helpful in attracting top talent and improving employee satisfaction, but results are still inconclusive on the overall improvement on actual productivity.

Companies still struggle with methods to motivate their employees to do more and higher quality work. Many employers continue in a more traditional top-down approach to incentivizing them with amenities, work-lifestyle balance, bonuses, and stock options. But in the employee’s day-to-day activities, it is difficult to apply these incentives directly to the actual work being performed. In addition, while there are many quantitative measures on the results of an employee’s work, it is much more difficult to measure the qualitative behaviors of that employee as inputs leading up to those results.

According to Socialnomics, volumes of new data and photos are uploaded continually by employees, more than 1.6 billion Facebook users upload 350M photos daily and more than 100 hours of video are added to the YouTube database every minute. Sixty-four percent of employees visit non-work related websites each day.

Time Wasted % of Employees
<1 hour 39%
1-2 hours 29%
2-5 hours 21%
6-10 hours 8%
10+ hours 3%

Source: Salary.com Work Survey, 2013

For example, an employee who works 2,080 hours per year (260 days) and is in the top bracket of time wasted equates to 520 hours per year of lost productivity. According to recent data from Salary.com (Source: Salary.com Work Survey, 2013), employees give the following reasons for lack of productivity.

  • 34% of employees say they are not challenged
  • 34% say they work long hours
  • 32% say there’s no incentive to work harder
  • 30% are unsatisfied with work
  • 23% are just plain bored
  • 18% say it’s due to low wages

Employers need to flip this around and empower employees to be intrinsically motivated to do more and higher quality work for their own benefit. Companies continue to push core systems and applications to the cloud, and these cloud services often provide API’s that enable visibility and interoperability among them. The activities and transactions among these applications contain a rich source of information that can help visualize and track the quantitative and qualitative productivity of the employee. The number of emails and IM’s sent, the number of calls to clients, the number of blogs posted and documents updated are valuable quantitative productivity measures. Furthermore, the frequency and duration of those activities, especially with high profile target clients, provide a more granular view into the qualitative measures of those activities.

Companies such as Prodoscore integrate with Google for Work applications, track sales activities across a number of measures in near real-time, and deliver analytics on those activities that the employer can monitor while the work is happening. Prodoscore calculates a proprietary employee productivity score that provides a continuously updated ranking system of employees and can help identify star performers or opportunities for improvement and training. This level of detail and access had not been available previously to employers, and provide a view into the future of work.

In general, two opposing elements of finance drive an employee’s behavior; the need for financial security (i.e. fixed salary component) and the want for recognition and financial reward (i.e. variable salary component), which when properly combined can lead to strong motivation and successful results. Companies often try to drive these behaviors via bonuses and/or stock option/grant plans after the achievement of positive results. However, these do not reinforce the employee’s behaviors on a daily basis and usually become more important around the review cycle.

With a metric driven system, regular reporting, and regular communication with the employee, the company can create a direct correlation to performance and a fixed plus variable salary structure that is visible and measurable by both the company and the employee. This will create a positive reinforcement loop that will continue to develop and grow stronger.

Of course, these metrics will also directly correlate into positive results and profitability for the company. Happy employees that clearly understand the performance level expected of them, receive regular feedback, and feel empowered to control their performance for higher pay aligns the best interests for both the company and employee. Employee intrinsic motivation and pay for performance will differentiate and drive the success for the company of the future.