abstract art, a systems view

Why so-called performance related pay doesn’t work

with 12 comments

The behaviour of each of these shapes/colours is determined by the system in which they operate.

step 3 (conclusion)

Don’t you think that the pinks are especially high performing? Don’t they deserve special recognition? Yes, let’s give them a good bonus this year and a higher salary increase than the others. They deserve it.

Performance related pay doesn’t work because organizational behaviour is a result of the system (the responsibility of management). Paying people differently for what is a result of the system is always unfair. It also leads to concentrating on individual performance rather than on improving the system.

W. Edwards Deming has shown that in any organization 94% of opportunities for improvement come from the system and only 6% from individuals within it.


12 Responses

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  1. Give Deming a bonus!


    March 2, 2012 at 1:45 pm

  2. Andy, I’m sorry I have to disagree with you. Although they are part of the educational system, I think great teachers should be paid more than bad teachers. That way the bad teachers will try to do better or will find another line of work.

    Gayle Alstrom

    March 2, 2012 at 5:45 pm

    • it assumes that the ‘problems’ with eductaion are the result of ‘bad teachers’ instead of asking about improving the education system. (And I don’t mean more inspection, in the UK at least that’s one of the problems with the system. It puts teachers under undue pressure to perform and is then surprised when they seem not to perform. Deming also showed that you cannot improve anything through inspection at the end of the process, you have to build quality into the system.)

      Andy Parkinson

      March 2, 2012 at 6:48 pm

    • Interesting thing on radio 4 recently about schools (and by extension teachers), that they only contribute about 10% to the life outcomes of children, the other 90% being forged by “the system” or environment they come from, i.e. class, income, family make-up etc

      If you couldn’t spot good school, due to the effect of background, how will you spot a good teacher?


      March 3, 2012 at 1:45 am

      • Thanks for your comment and for the interesting link. I think it is a good example of the effects of the system and of the point that improvement comes from working on the system.

        Andy Parkinson

        March 8, 2012 at 8:12 am

  3. Damn right…my only experience of this was being told I’d underperformed in a year when I’d spent six months of it recovering from a quintuple heart bypass…and worked like stink the other six months…needless to say I left that employ in fairly short order!

    David Manley

    March 4, 2012 at 10:13 am

    • Hi David and thank you for commenting. I guess one of the bad (for the company) effects of “performance related pay”, is that when people are aggrieved by it they leave! Those who do not leave find other ways to “fight back”. Lets remember that this approach puts 70% of the workforce in the wrong, so after the first year, although its intention was to motivate, its actual effect is to de-motivate the majority: “Well, if you are going to rate me “good” (usually meaning you get the standard (low) increase) when I thought my performance was “excellent” (usually attracting a slightly higher pay increase) I will perform at the “good” level next year”.

      Andy Parkinson

      March 8, 2012 at 8:24 am

  4. I don’t think it works that way today. Not in the U.S. anyway. Not for me. Deming studied factories in the 1930s and 40s. In my experience as a professional, “knowledge worker”, in the 21st century, annual performance related increases in salary are determined by looking at improvement over my own past performance. Not on a basis of comparison with my colleagues. The question is not ‘do I do what I do better than others’, the question is ‘do I do what I do better than I did it before?’

    Don’t get me wrong — Deming did great work. I just wonder how applicable it is to the kind of work I do. It seems more applicable to unskilled labor, which is what he studied I believe. Even there, is there no possibility of working more effectively than one’s peers?


    March 5, 2012 at 3:18 am

    • Hi Zorgor. Thanks for your comment. Deming’s comments are meant for anyone who works within a system. His examples were often engineers and scientists as well as people working on assembly lines (often highly skilled tasks).
      There are lone workers whose relationship to the system is less direct and I would imagine that the 94/6 ratio would seem less meaningful. I am thinking of entertainers, musicians and sports people. They clearly have more opportunity to improve the job by working at the individual level than do most other professionals. By the way, I doubt that it is true for “high performing” investment bankers or football managers, whose varied performances year on year are probably near 94% system VS 6% person. Individual performance varies, that is a fact, understanding variation is part of what it means to work on the system. Unfortunately many find it easier to pay people for differences attributable to the system, rather than learning to work on the system to improve it.

      Andy Parkinson

      March 8, 2012 at 8:35 am

  5. Hi John, thanks for your comment and the excellent links, all good. That’s a great quote from Deming, also enjoyed the Dan Pink video.

    Andy Parkinson

    September 1, 2014 at 3:41 pm

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