Since official statistics have indicated a very steady climb in worker productivity over the past twenty years or so and wages adjusted for inflation have either remained flat or declined over these years the problems seem to lay more with just compensation for work output than with worker laziness.

Cutting edge business theory says workers' performance decreases when bonuses of any kind are offered - even yearly. As soon as someone determines they arn't worth the full bonus, morale goes down and productivty suffers. I'd rather just pay my good people more, because it's worth it to me to invest in them and keep the company strong.

Additionally, it's very difficult to hire top notch people under that mechanism. The best people in just about every area can pick and choose what company they work for. Why should they work at your place and risk poor management deciding they shouldn't get paid the full amount? The guy down the street will pay a solid, good salary/wage with no uncertainty.

The old cliche "people are your biggest asset" is still alive and well. Reward the brightest and best you have unidirectionally, and allow them to make mistakes. Foster an environment where they thrive and are stimulated. Remove the ones who don't preform to the standards you've set up. The poor morale and motivation those people have affects your good employees negatively. You owe it to them, as a manager, to keep them happy and working effectively so they turn out a good product.

When good people get upset and leave there's often a chain of decay that follows as other decent guys see the headlamp of the oncoming train, and decide to get out of the tunnel. I just wouldn't ever risk that.

This system is strongly related to how physicians are paid. Physicians produce to a baseline in billing collectables and then they share in everything they produce above the baseline.

If you are talking about an engineer, you may be correct. Engineers commonly work between 50 and 80 hours a week for negotiated wages. The same holds true for most salaried employees.



However, hourly laborers have a high occurrence of people that just don't want to be there. They have no direction nor drive. I personally know of nurses, back office assistants, radiology techs, billing clerks, and especially office managers, that no matter how much you pay them, they have no interest in producing more than they can get away with. Which means you constantly find them on personal phone calls, playing games, on the internet, email, magazines, anything but work. How often do you see one person working and others standing around kibitzing. If you fire them, you get more of the same.



There is some inate psychological condition that exists for certain peoples. Others like physicians and engineers are in-general highly motivated and find something "productive" to do even when they are waiting for the next patient or phase of their project to begin. Laborers commonly want the most money for the least work; there are of course exceptions. But I can speak first hand to the poor productivity in the medical professions.

If an employee maintains a significant below average Performance Factor, would you want to keep them? If they leave, you don't have to pay unemployment. If they stay, it's because they can't find anything better elsewhere. Maybe they have risen to their highest level of competence.
Not all people are created with equal abilities to perform within specific environments. But employers should not be penalized for an employees inate incompetence.

I suspect there are many jobs out there that an untrained or insufficiently educated person holds where they are barely holding on to their position. An employer might choose to fire them and hire someone more competent. Or the same employer might be comfortable with dealing with there present employee and paying them less; which may be entirely acceptable to the employee rather than going back to work at Wal-Mart.

The bonus would be paid once each month. Something I left out of the original proposal. This allows for on-going constructive critique of employee performance and the employee doesn't have to wait too long before they get guideance.

I agree with your supposition but think the dynamics of the motivation needs expansion. We live in a Free Enterprise system which seems to support the premise behind "the harder you work the more you get". Sure, this methodology will eventually weed out the rotted employee and eventually replace them with someone that might last. The weak area of your idea is the amount of time it takes to expel the sorry employee. I think more should be done to allow the business to work democratically. For example, if there is a crappy employee the other employees should be allowed to perform "intervention" as a group. If one person breaks down use peer pressure of the other employees to motivate the employee. Look at it this way... perhaps if we did more to help those that can't seem to help themselves we might find that our investment in the "person" is more profitable than money we spent on a "worker". I have always modeled my businesses based on the free enterprise structure. Give your employees their personal part of the business and tie them together to work as a whole. Reward their success with cold hard cash and praise. Punish their failures with the pressure of the group, weed out the weak using the tried and true methods of Survival of the Fittest but give all you hire their fair chance.

bkeene12: Thank you for the thoughtful response.

The dynamics of motivation:As a business prospers and the profit margin increases, employers can afford to pay productive employees more. The business runs more efficiently and waste is reduced. Few employees are needed to accomplish the same and consequently less work.

Honeywell uses a performance based system that is far less interactive. They have a scheduled layoff every three years. Performance evaluations are conducted annually. A composite of performance evaluations and factors unknown to the individual employee determines whether or not they will be cut. Very rarely does an engineer retire from Honeywell. Younger employees cost less then tenured employees. Burning out at Honeywell is very common.

If you want to expel an employee in New Mexico, you just fire them. You can walk them out the second after issuing them a pink slip.

As for documentation of failed performance, this procedure provides built in on-going documentation. Many employers fail to document failed performance and retain poor employees because they feel they don't have sufficient reason to let them go. If the employer has regular performance evaluations, this is not a problem. And the evaluations may show that the administrative protocols are the problem and not the employee.

Regarding a democratic component in performance based wages; I agree, each employee of a work group should be allowed to provide critique of fellow employees based upon a broad range of characteristics. A system should be implemented by management to provide on-going refinement of assessment-versus-outcome scenarios. However, peer pressure can have negative consequences; especially in regard to managers providing percieved favoritism.

Performance based wages are not new. Hourly wages are performance based. Work or get fired. Work well and long enough and you might get a raise. But as I've outlined, the employee gets periodic reviews regardless of how long they have been an employee; even if they are a manager.

Regarding: "reward their success with cold hard cash and praise" You are doing performance based wages. "Punish their failures with the pressure of the group" this can be sticky, if an unfavorable rumor is started or the group determines the owner or manager is the weak link, an entire team can degrade quickly. A stabilizing factor must be maintained to prevent quick changes in corporate culture; visa vi "company policy".

All of these things are management tools. Performance based wages is just one more tool; but one that is part of the company structure.

Where this system needs greater development is that an on-going system of providing and evaluating metrics needs to be established, and improvements continually providing for continued performance based wage developments. The actual proportioning and numbers used should be modified based upon outcome, not just because they are listed here.

Please keep in mind that this particular motivational tool is meant for small businesses. The complexity of the formula is intentionally simplified. The vast majority of all small business owners do not have any formal education beyond high school. Larger companies like Honeywell use vastly more complicated performance wage models to control employee wages and perks.

The performance factor might be based upon the written expectations of the owner for each employed position, the managers and CEO might meet frequently to discuss modifications to the percieved job descriptions by the CEO so that the CEO is more closely linked with actual performance of the small company.

So a landscape contractor and CEO states: John Doe is supporting Team 1, General Labor 1. As such, the laborer is required to be able to lift 70 pounds, work 10 hours a day Monday through Friday. The laborer is expected to come in when needed on weekends not more than once per month. The laborer will be running power tools and must recieve training in safety. .....

John Doe was injured on the job because he failed to wear the protective gloves provided. His hand was cut and he is holding his team back by wanting to chat with the team members more. His hand is bothering him.

The lost revenue including any medical expenses, time off work,degraded team performance, and additional costs due to safety training and management costs in labor are documented. The percentage of costs and lost revenue are set against net profits for the team. This creates the net performance factor.

John Doe must complete a safety session with the manager and his wages are reduced by twice the hourly amount then that of the other team members. In a meeting between the manager and the team, the lack of performance of the team is shown and the apparent cause. The performance factor of each team member is displayed for all team members to see; but not dollar amounts.

The manager emphasizes to all teams the importance of safety and for each worker to look out for their team mate, as well as themselves.

The following month, work accomplishment returns to normal. Wages return to normal. A meeting is held and the manager commends the team on their continued efforts.

Wages fluctuate around every month based upon company revenue and costs related to each team.

The performance factor must be shaped to fit the abilities of the business owner/manager; and as much as practical the PF must be automated to minimize bias and reduce management overhead.

In a base plus bonus structure the employee only notices a benefit when they receive a bonus. In my proposed structure, the employee is constantly aware that their wages are tied to company revenue, which is directly tied to their efforts. When they work hard, they can see the numbers change, and their wages as well. A type of game between team members develops to achieve team best efforts.

In Alabama, private contractors lay gas line. For one company, the employees were offered to be paid by the foot (performance wage).

The following is ficticious but shows a concept:

Where it would take an entire day to lay 500 feet previously, the team was able to lay over 1500 feet a day. Laborers made much more money a day, while the employer pulls in 3 times the money per day. Employees asked for different equipment, the extra money provided the equipment, and production went up to over 3,000 feet a day using only one more laborer and the new equipment. Everyone wins. The customer was happy because the sooner the gas pipe was installed the sooner profits started flowing.

In actuality, in talking with one of the laborers, production is near 10 times what it was when he first started working for the contractor.