Discrimination based on personal factors like religion, ethnicity, sexual orientation, political beliefs, and other personal factors, have no place in the work environment. Discrimination based on talent, effort, and potential, though, are necessary for maximizing performance.
When it comes to compensation, benefits, training, coaching, and even promotions, many leaders try to be “fair” rather than focusing on the best interests of the firm. For many traditionally-minded firms in Asian markets, it is not uncommon for leaders to have the attitude that if employees stay with a company long enough, they will get raises and be promoted over time, regardless of their performance. What you will find, though, is that many of your employees, especially the best ones (which are the ones you really want to keep), not only want to be compensated for their work, they also want to see an opportunity for upward mobility based on their performance, even if that means leaving lesser performers behind. That does not really line up with some people’s concept of equality. But does it sound so crazy?
See if you disagree with either of these statements:
– People who perform better should be paid more
– People who show potential should receive more training and development
Do those make sense? Or do you think compensation should be the same for everyone at the same level, regardless of performance? Should everyone receive training regardless of their potential for putting it to good use?
Think about it: when it comes to buying resources for production, you have a price you are willing to pay based on the value those inputs will add to your product. Simple supply and demand-type stuff, right? In knowledge work, your people are your resources, and while it may seem dehumanizing to call your employees “resources,” the truth is that you have a finite amount of money to spend on compensation and individual development, and you have a responsibility to put that money where it’s going to do the most good.
So what does this suggest? Well…
Individual salaries should be based on the value the employee provides your firm, rather than just on job title or longevity. Sure, these can be factors, but your primary interest in calculating salary should be what the employee is doing for the firm.
When it comes to annual raises, perhaps you should not make them automatic. Some companies have a minimum “cost of living” raise to account for inflation, and then may put some performance-based raise on top of that, but is that minimum even necessary? Why should poor performers make more money next year? If their “real” salary goes down because of inflation, that will send a pretty clear signal that if they want their income to keep up with prices, they should work on improving. Meanwhile, spend your money on salaries for those who performed really well this year.
The same, by the way, goes for bonuses. They should not be automatic, nor do they need to be spread around equally. Your good performers should get them, your great performers should get bigger ones, and your poor performers should be told what they need to do to qualify next time.
Do not spend your training and development funds on people who are not going to improve or who have no interest in doing more; instead, put the money where it can do some good. Bear in mind that development is seen by many employees as a factor in retention, and ask yourself: “do I really want to retain my poor employees?”
The US government tried something like this about 10 years ago: the National Security Performance System, which created a new pay system that was supposed to emphasize performance over longevity. It was scrapped after a couple of years, due in part to mid-level leaders who were supposed to make decisions about salaries but who were reluctant to actually rate people honestly and instead tried to spread around the pay increases “equitably.” A lot of people do not want to make the hard call like that; they do not want their employees to dislike them, they do not want to create dissension in the workplace, they want to help someone with trouble at home or give an employee “just one more chance”…and then one more, and then one more.
It may sound harsh, but if you are not willing to make the tough decisions when it comes to people, well, maybe you should not be in a leadership position. It has to be done, and if you are not going to do it, then perhaps you should step aside and let someone else. That does not mean you should be uncaring, nor does it mean you should not be uncomfortable with some of those decisions, but in the end you have to do what is best for the business.
Consider, too, that this is better for your employees. Your good performers, or those with potential, will know they are on the right track and so can keep moving in that direction. Your poor performers get the unmistakable message that what they are doing is not working, and they are motivated to either improve somehow, or switch to another line of work, or just keep doing what they are doing for the lower salary (in which case, you may have some other decisions to make about them before long).
One difficult element of a meritocracy, of course, is the potential for abuse. Unethical leaders will use their position of judgement to intimidate people and get something from them, or punish people whom they do not like regardless of their performance, or reward their buddies or the suck-ups. For this to work, you need to be honest, you need to be objective…you need to be a good leader. It would be a good idea to have a system for reviewing employees’ concerns about your decisions (big companies usually have an ombudsman or something like that; small firms often have “my way or the highway,” which is not too helpful).
On a related note, if you are going to divide up salary and opportunities based on performance, you owe it to your employees to make sure they know that, and know what the standards are that you expect them to meet. Coming up at the end of the year and saying “you don’t get a raise because you did not do X, Y, and Z,” when they thought they were supposed to be doing A, B, and C, is flat out unfair, and also means you wasted their abilities on something you didn’t think was all that necessary.
Running a meritocracy is not easy. But if it was easy, we would not need good leaders.