Monday, March 21, 2011

Performance Pay is all the rage right now.  Many cash strapped companies are moving away from standard annual pay raises and opting to pay quarterly bonuses based on performance. It will in effect save some of them millions of dollars, and allow them to keep and reward their best performing employees. So, How does it work?

Performance pay requires a measurement system to determine the performance of an individual or group.  This is  a difficult thing to do in certain conditions.  For instance, if a company makes widgets..and the number of widgets produced equals profit...then performance is tied to the number of widgets made.  However, if the employee's widget maker breaks..then the number of widgets they could have made is reduced.  How does a company account for this?

Since this can get complicated I will try to keep it as simple as possible...a company can create metrics that are used to measure an employee's projected production.  For instance, is an employee has created 100 widgets on everyday they worked during a quarter, and their widget maker was down for 2 days...they can just say that had the widget maker not broken they would have made 100 on those days as well.

The second element in Performance Pay is..well..the pay.  Every product made has a cost to manufacture..and a profit margin.  Both cost and profit are variable.  To keep this discussion simple we will say that the company only looks at profit for each widget when determining the Performance Pay.  The company allocates a certain percentage of profit for regular pay..and a certain percentage for Performance Pay.  Employee's that meet a certain level of production then qualify for the Performance Pay.

I know what you are thinking...Making an actual physical product is different than providing a service. Actually there is no difference.  Services are products...they are widgets...the only difference is how you measure the profit from the service...and how the employee generates the service.

Is Performance Pay fair?  No, it is not intended to be fair.  It is intended to get the most productivity out of your production line as you can.  Hard work is rewarded.  It is smart business.

Now for the difficult part of the discussion.  How does Performance Pay translate into government services?  At first it may appear that government is a special case....well it isn't.  Each year government begins with a finite amount of funds.  Those funds are based on Taxes and fees (which are also taxes) collected.  How those taxes and fees are collected is for another discussion.

Merit Pay is Performance Pay.  Our Educational system is a business. Each year a certain amount of funds are allocated to the education system.  Gauging the performance of that system is a complex and dynamic task.  Our educational system must remain dynamic to meet the ever changing world in which we live.  There is no difference between education and making is just the widgets are alive....and they are an investment in the future.  The return on that investment is variable...but it is measurable.

What will Merit Pay cost?  It will cost what we budget to the effort.  What return can we as taxpayers expect from Merit Pay?  We can expect Teachers who are competent and dedicated to doing their absolute best in creating valuable widgets.

Government has been working on failed budgeting.  Money is often lost due to poor performance of those who have been trusted to use the money wisely.  I support any effort to bring cost in line with the return on investment.  It is long past time that our children received an education from the best teachers...not just those who have a teaching certificate.


  1. If the Kenyan's pay was based on performance, he would have to kiss all our behinds for a first installment.

  2. Madpole, in a performance based system, a good company will provide resources to help epoyees meet whatever goal is involved. When an employee is over using the resources, and under performing.. the company limits his use of the resources. Obama would have lost AF1 and most of his Czars a long time ago..

  3. An accurate and equitable assessment of performance will be the key.

  4. Captain; over the years, most of the jobs I had based compensation was production, I prefered it that way. Some paid very well, Other Companies" I'd rather forget. Most of the "Other Company" experiance I got while I was young and dumb..

    The "Other Companies" use a system designed and intended to be used unfairly.

    Since "Other Companies" paid the people producing the widgets the same regardless of special conditions on any given job the "Other Companies" would underbid more legitimate companies and offset the difference by passing it off on thier "paid per unit" employees..

    Most of the time the low price got the job.. and the employees figured out ways to get the numbers up, get paid and generally quit, before it was discovered all the widgets had hidden defects.

    Other companies would use a siding scale that took into account special conditions and adjusted the price per widget accordingly. There are a number of variations that work out well for both the employee and the company, Once I figured that out, I couldn't understand why anyone would want to be "on a clock"

    I've looked closely at the schemes in SB 736.. The State of Florida and their plan puts them into the "Other Company" catagory.. In the long run, the scheme will produce defective product and high employee turnover.

    Since the product is only subject to one annual "quality control inspection" there will be all kinds of interresting ways devised to cheat the system.

  5. Every single taxpayer should be complaining about the hundreds of millions of dollars thrown at test development and test correction.

  6. Florida Education Commissioner Eric Smith announced his resignation. Not published in the Florida Today....yet.,0,3832082.story

  7. Anonymous, the Sentinel article talks around why he's leaving... leaving everything open for speculation....

    Grumpy Educators, had sort of a celebrity commenter:

    Michele Gray said...
    Thanks for your support of what we are doing.

  8. I have a neighbor upstairs from me who is a combination of a useful idiot and educator. She teaches sixth grade. Years ago she informed me that teaches spend the whole year preparing students for these tests rather than educating them.

    Parents need to wake up and get a grip on their children's education. Failure to do so is a disservice to our children and their future.

    I support merit pay and the elimination of tenure. NYC schoools are a mess and our teachers should be held accountable. As of now, they are not.

  9. Puma, I think were all support rewarding perfomance, but I also think we need to get it right.. The testing schemes have built in flaws, some really bad... there has to be a better way.

  10. USMC1949: "An accurate and equitable assessment of performance will be the key."

    Absolutely! Tennessee has 15 years of experience with this and an acknowledged leader. I wrote about their procedure last year and repeated it this year. TN approaches accurate and equitable far better than Florida.

    Why the disparity? (I won't hold my breath)

  11. Capt. BE: "Performance Pay is all the rage right now."
    What sector, industry or company measures 50% of performance (1) uses a process that experts have determined is unstable and should not be used for high stakes decision-making; and (2) manufactures widgets that are not just alive, but human? Which one please?

    "Alive" means variables. "Alive" in human children means 26 students, each with a different level of maturation, different speeds of learning, different approaches, and different goals. Equating children to widgets makes no sense.

  12. I tried to comment but the dang system said no.

  13. I have tried several times to prepare a response..but the comment system apparently hates me. I will do another blog to address your concerns Sandra.

  14. My concern is dollars and cents. Every State in the U.S. is spending tens of millions of dollars on tests. The States decide what tests they want to use. The U.S. government is spending hundreds of millions of dollars on tests and all indications far more to be spent on more standardized tests - formulative and diagnostic tests, not just one at the end of the year, but along the way - the kind of tests teachers used to prepare as part of their job.

    I am 100% for accountability and support an accurate an equitable performance pay system - but it must be cost effective, not create an overblown, expensive bureaucracy to support it. There is zero accountability in this regard.

    It is no wonder that we are in debt. No business would survive with such a procedure.

    Another blog might help understand your point of view.

  15. Manufacturing can achieve 100% defect-free widgets. The defective widgets are eliminated. The picture for creating valuable widgets in public schools who do not fit the mold means what? Medication?


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