Perception Pay

A recent Inc. article warned against overpaying your poor and mediocre employees. Acknowledging there's also a problem of underpaying star performers too little, the author recommended four actions:

• carefully consider salary before offering employment
• participate in industry group salary surveys
• honestly evaluate employees
• shift some of the compensation towards bonuses and other performance-based mechanisms

Unfortunately, the simplest advice was forgotten. Since most of us establish salary ranges, it's easy to keep poor and mediocre performers below the middle of the salary range, and ensure that star performers are at the top. Likewise, pay is only one part of the compensation and benefit package. Competitive information on those things and the working environment/culture are difficult to ascertain as a group: does the lower paying company have better benefits and a tremendously encouraging culture with a large personnel development budget, or are those extras attached to the higher paying companies?

Knowing who your star performers are is another problem, on which I've blogged quite a bit. Performance appraisals have problems. Our own perception of a person's worth can be biased by particular dynamics that build trust with us, but not with others. For example, I might count dependability more than I count on relationship skills (e.g. acceptance, respect). Also, there may be political dynamics that make a person look really good or really bad relative to his/her peers. We have a Habit of Perception, and it takes a ton of different behavior from the other person to change our habit. For example, if I believe a person is always late with their assignments, they would have to be on-time 99 times in a row before I change my perception.

Also be careful regarding the bonuses. Are they going to be based on individual, department, business unit or overall corporate performance? Will the person earn it or can serendipity be a factor? What if the person excels in their assignments and the rest of the organization fails? Or vice versa? The answer to those questions may play into how much of the total compensation is bonus-based, and what proportion of the bonus is derived from overall results for the organization.