“is used as an ‘add-on’ to the employees’ base salary.”^98 Pay for performance may also be
more successful when organizations are more transparent about financial conditions.
Ottawa-based Lee Valley Tools, which has a pay-for-performance program, uses quar-
terly newsletters to let employees know how much profit is forecast. Being informed
helps employees understand how their efforts will pay off for them. Robin Lee, the com-
pany’s president, says “sharing information and profits promotes an atmosphere in
which hard work, innovation and efficiency pay off for everybody.”^99What About Teamwork?
Incentive pay, especially when it is awarded to individuals, can have a negative effect on
group cohesiveness and productivity, and in some cases may not offer significant ben-
efits to a company.10 0For example, Montreal-based National Bank of Canada offered a
$5 employee bonus for every time employees referred clients for loans, mutual funds,
or other bank products. But the bonus so upset employees that the plan was aban-
doned after just three months.^101 Tellers complained that the bonus caused colleagues
to compete against one another. Meanwhile, the bank could not determine whether
the referrals actually generated new business.
Organized labour is, in general, cool to the idea of pay for performance. Andrew
Jackson, director of the Social and Economic Policy Department at the Canadian Labour
Congress, explains that “it hurts co-operation in the workplace. It can lead to competi-
tion between workers, speeding up the pace of work. It’s a bad thing if it creates a stress-
ful work environment where older workers can’t keep up.”10 2Pay for performance can also
be problematic if work is speeded up to such unfair levels that employees can injure
themselves. Still, not all unions oppose pay for performance, and the benefits and draw-
backs of such incentive plans must be carefully considered before they are introduced.
If an organization wants a group of individuals to function as a “team” (which we
define in Chapter 5), emphasis needs to be placed on team-based rewards rather than
individual rewards. We will discuss the nature of team-based rewards in Chapter 5.Motivating Beyond Productivity
In recent years, organizations have been paying for performance on bases other than strict
productivity. Compensation experts Patricia Zingheim and Jay Schuster note the fol-
lowing activities that merit additional compensation:^103- Commissions beyond sales.Commissions might be determined by customer satis-
faction and/or sales team outcomes, such as meeting revenue or profit targets. - Leadership effectiveness.Rewards can be determined by employee satisfaction or
measures of how the manager handles his or her employees. - New goals.Rewards go to all employees who contribute to specific organiza-
tional goals, such as customer satisfaction, cycle time, or quality measures. - Knowledge workers in teams.Rewards are linked to the performance of knowl-
edge workers and/or professional employees who work on teams. - Competency and/or skills.Rewards are based on employees’ abstract knowledge
or competencies—for example, knowledge of technology, the international
business context, customer service, or social skills.
Exhibit 4-11 on page 131 compares the strengths and weaknesses of variable-pay
programs, team-based rewards, and skill-based pay programs. Skill-based payis based
on how many skills an employee has or how many jobs he or she can do.
While rewarding individuals for something other than performance may make sense
in some instances, not everyone agrees that these rewards are fair. OB in the Streetques-
tions whether athletic scholarships should be given for athletic skills only, with little con-
cern for academic merit or financial need.
130 Part 2Striving for Performance
National Bank of Canada
http://www.nbc.ca
Canadian Labour Congress
http://www.clc-ctc.ca
skill-based pay Pay based on
how many skills an employee has or
how many jobs he or she can do.