Since only a few employees are standouts, it makes little sense to risk demotivating the broad majority by linking pay and performance. More and more technology companies, for instance, have done away with performance-related bonuses. Instead, they offer a competitive base salary and peg bonuses (sometimes paid in shares or share options) to the company’s overall performance. Employees are free to focus on doing great work, to develop, and even to make mistakes—without having to worry about the implications of marginal rating differences on their compensation. However, most of these companies pay out special rewards, including discretionary pay, to truly outstanding performers: “10x coders get 10x pay” is the common way this principle is framed. Still, companies can remove a major driver of anxiety for the broad majority of employees.
Authors: Asmus Komm, Boris Ewenstein, Bryan Hancock
Source: McKinsey Quarterly
Subjects: Compensation, Human Resources
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