Friday, September 25, 2009

Pay for performance

The problem with pay for performance is it’s a bit of a misnomer. There is talk about pay for performance, but when institutions lose money, somehow people continue to get paid. Historically, these large institutions have paid even in poor times just to keep talent. But that’s changed. Today there is no scarcity of talent, so you are seeing more and more companies starting to squeeze the bonus pools. Because if you don’t want that job paying a million a year, there are prob 5 to 10 people lined up who are ready to do it for less.

It got the point that people really believed they were entitled to pay regardless of performance, thought of it as an annuity. It’s not an annuity – pay should be be based on performance. And performance cascades from the overall institution to the division to the employees. So, as an employee, what you want to be assured of is, not the absolute dollar amount, but where you are relative to everyone in the organization and your external peers. That may be several $100,000 or perhaps over a million. Many people made $4 or $5 million several years ago and felt hard done by that they didn’t make $15 million. Last year they were happy to get $500K.
Times have changed.

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