The Principles of Linking Pay to Anything
Workspan Daily
February 03, 2020

Editor’s Note: Workspan Daily will be reproducing a monthly Compensation Café blog post for the benefit of our readers and to encourage further discourse on topics vital to compensation professionals. New to WorldatWork? Please feel free to join the discussion in our new online community, Engage, or send your thoughts to workspan@worldatwork.org.

Rob Markey of Bain & Company's global customer strategy and marketing practice wrote a great series of Harvard Business Review articles awhile back on the perils of linking pay to customer feedback. As any of us who've considered using customer feedback metrics in incentive design know, this can be a potential minefield. 

Markey's cautionary advice on pay linkage is well written and worth our consideration beyond the boundaries of customer feedback metrics ... before we link anything to pay.

With that in mind, let's consider his five essentials — preconditions for trust and credibility — in the context of broader compensation design:

Essential 1: Truly reliable feedback and metrics. If your metrics aren't trustworthy, if they vary widely from one time period or unit to another, and you don't know why, your compensation system won't be trustworthy either. This "essential" has obvious application to any metrics we might consider tying to pay. Markey provides some great suggestions for digging into prospective metrics to assess their viability with questions like, “Is the sample controlled and stable?” and “Are response rates high enough to reduce responder bias?”

Essential 2: A clear link to financial and strategic outcomes. Your metrics must correlate with financial and strategic goals. I've posted before about the importance of grounding incentive design in value creation. Markey makes the same point here: Without a confirmed link between your selected incentive metrics and business outcomes, your incentive system won't last long.

Essential 3: Processes and tools for understanding root causes. Markey uses the example of a company that began linking improvement in customer feedback scores to executive compensation before it had developed the discipline and processes for truly understanding those scores. The company's managers, understandably, felt helpless and frustrated. This is perhaps our most common mistake with incentive plan development, one that critics like Alfie Kohn and Dan Pink nail us on for good reason: throwing incentives at a problem before/without understanding or providing the tools to deal with its root causes.

Essential 4:  Organized learning. The root cause discipline noted in No. 3 above must be supplemented with the means and the leadership support for learning and improvement. Again, often an area where we are at fault where we try to implement incentives in lieu of learning and development (I've seen it tried and I'll bet you have, too).

Essential 5: Repeated communication. Why, Markey asks, do so many leadership teams spend countless hours devising the details of incentive systems and then under-communicate their intent?  Amen. 

Although, as my Café colleague Margaret O'Hanlon and I have both noted in earlier posts (mine hereMargaret's there), effective communication in this age of information overload is more about creating patterns than repeating messages. 

Sometimes our best advice comes from outside the profession.

This article was first published at Compensation Café on Jan. 18, 2022.

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