An organization’s compensation system is a crucial aspect of its overall success and undoubtedly, the approach to compensation is a huge factor in attracting the best talent. This strategy brief discusses which compensation method a company should use on its employees. Author takes the pay-for-performance position.

1. Drive Your Business
Should You
Pay For
Performance?

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Ever felt like you were working ten times harder than those around you and earning the
same or lesser pay? Did you ever think there was no incentive to be a top performer
because your company paid out bonuses on a global scale regardless of your contribution?
An organization’s compensation system is a crucial aspect of its overall success and
undoubtedly, the approach to compensation is a huge factor in attracting the best talent.
So which compensation method(s) should an organization choose in order to achieve goals like:
Introduction
While there are many factors and variables involved in
answering the question, it is the author’s position that pay-for-
performance is a proven method to attain all of these goals
and that by expanding the use of this technique, companies
stand to improve their bottom line while retaining top talent.
• Remaining competitive?
• Reducing cost?
• Increasing profits?
• Retaining high performers?
Read more at http://goo.gl/DBcmT1
“Organizations that do not
yet differentiate pay based on
performance may be losing out on
a competitive advantage.”
– Ken Abosch, AON Hewitt’s North American
Broad-Based Compensation Practice


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While many organizations have been very successful in implementing pay-for-
performance systems and research illustrates that it attracts high performers,
numerous other organizations are unclear on how to proceed and accomplish the
benefits of a pay-for-performance system or are unwilling due to fear of unknown
consequences and/or employee resistance. These obstacles, while challenging,
should be considered in light of the benefits before dismissing the method.
Some benefits include:
• Produces an incentive for individuals to continuously
strive towards high performance.
• Attracts entrepreneurial and high performing individuals.
• High performing individuals are more satisfied with an
organization that bases their pay on performance
A survey conducted by AON Hewitt found that 60% of companies attempt
to reward each performance level, while only 20% give the majority to
high performers, some to average and none to low performers.

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Undoubtedly, one can conclude that pay-for-performance has the ability to attract and maintain
high performers, which is a significant aspect to any successful organization. Likewise, we
should all be aware that low performers prefer to stay within their comfort zone, and can
be intimidated working for an organization that employs pay for performance methods.
“Cash-strapped companies unable to afford
big raises can use pay for performance to
single out their most valuable workers
so they can be recognized, rewarded,
motivated and retained.”
– Manny Avramidis, Senior VP of Global Human
Resources at the American Management Association

Thus the desired result - discouraging
low performers from applying, or to leave
an organization after implementation of
a pay-for-performance system. This produces a win-win situation for the organization
and low-performers for the following two reasons: 1) It aids the organization in
achieving results of a competitive advantage, and 2) Low-performers can obtain
employment with an organization that suits their level of performance.
Back this up? Provide hard facts? The following pages summarize successful results for two
companies illustrating that a pay-for-performance system can produce successful outcomes.

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Reward high performers
and watch your
profits rise
Case Study:
Hospital of Central Connecticut
During 2011, Lola Butcher of “Hospitals & Health Networks” reported the following case of
The Hospital of Central Connecticut, a two-campus system based in New Britain, which
implemented a performance-based pay for their emergency department physicians.
In the past, the hospital utilized a
traditional compensation plan that
rewarded physicians for their tenure,
with raises based on annual reviews
with no objective criteria. Upon
moving to a pay for performance
method, one result included a
physician moving from being one
of the lowest performers to being
one of the top three performers
consistently for the past three years.
Additionally, ED patient satisfaction
was below the 70th percentile.
Within the new system, all ED
 physicians receive the same base
salary and the same opportunity
to increase it by about 30 percent
based on their performance.
The amount of variable compensation
they earn is based on productivity
(75%) and patient satisfaction (25%).
Since the implementation of a
performance-based pay plan, five years
ago, patient satisfaction has never
fallen below the 80th percentile and hit
the 99th percentile in two quarters.
Overall, the hospital feels that
productivity is probably the number
one reason for patient satisfaction
because patients want to be
seen by a doctor quickly.




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Case Study:
Skyline Construction, San Francisco
During 2008, Mark Henricks of Entrepreneur.com, reported the following
case of Skyline Construction in San Francisco, California.
David Hayes, founder and CEO,
offered employees the opportunity
of taking lower salaries for
potentially higher bonuses based
on performance and 75% of the
employees opted for this opportunity.
 Two years later, sales climbed from
$36 million to $71 million, while costs
as a percentage of sales shrank.
Additionally, in 2011 the firm is on track
to bringing in more than $100 million.

Both of these companies are excellent
demonstrations of how paying employees for
high performance will lead to a successful
organization yet without hesitation the author
cautions that there are issues that may arise
within a pay-for-performance system.
Key points in creating a successful
pay-for-performance system are
summarized on the following page.

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During an evaluation, managers should be extremely aware of
the importance the evaluation plays in paying for performance.
Goal metrics should be tested and sanity checked. Poor goal
definitions or metrics will sabotage efforts to obtain desired results.
Managers must have the ability to be unbiased and handle
conflict well. This will ensure that individuals whom perform
high and low are measured correctly and not distorted.
1
2
If your pay for performance system is based on sales, be
cautious if you basing it on annual sales. This can potentially
create a “hard sales” culture which is known to be self-
defeating for large dollar sales and can negatively impact
relationship building between the organization and the client.
3
It is imperative for your pay-for-performance system
to fit the goals of your organization, and to take your
time in defining “performance”. Such as differentiating
between group and individual performance, in which will ensure that everyone
is on the same page when working either alone or with a group.
4
When you are ready to execute and implement your pay-for-performance
system, it is imperative to be very concise within its commitment, and
ensure that managers are on board for achieving successful results.
5
After implementation, monitor the results and make any
needed changes in order to continue your success!6
Any organization that desires to obtain and maintain a competitive advantage,
should seriously consider implementing a pay-for-performance plan. Likewise, if
one is already in place, then the organization should continuously monitor the plan
so that it may stay effective and consider opportunities to expand (one overlooked
area is paying project managers additional incentive to hit milestones).

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Scot Hanley is a senior technology executive
with an exceptional record of success in
the development and crisp execution of IT
strategy with over 25 years of experience.
He has the proven ability to facilitate revenue
growth and market penetration by delivering
business and technology solutions to meet
business and market needs. The foundation
blocks of his career include innovation,
relationship building, and focus in strategy
& execution, including excellence in Project
& Program Management. His passion
lies in orchestrating the transformation of
companies into market share leaders &
innovators and he has 15 years of leadership
experience specifically in strategies related
to IT Transformation and Modernization.
Scot is an innovative entrepreneur and
consultant with a demonstrated ability to
influence the C-Suite, launch new ventures
and transform organizations. He is skilled at
building and leading top performing teams
and producing enterprise level strategies
that transform capabilities, improve efficiency
and drive down costs. Named “Kerzner
International Project Manager of the Year by
PMI & IIL in 2008” he has special expertise
in PMO startups, Project Management,
leading divestitures and technology and
business process implementations. He is
a trusted consultant that harmonizes the
business and IT strategy into a winning
composition via business alignment.
He is a champion in helping companies
pioneer new ways to harness technology and
execute strategic plans to drive differentiation
in the market via delivery excellence.
He has held a wide variety of leadership
roles including start-up experience
with Hamilton-Ryker Consulting, VP
level roles with BCBS and Synovus
Author:
Scot Hanley, PMP, CSM, ITIL, MCP

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Financial and Executive level consulting roles with Ernst & Young as well as CapGemini.
He has experience across the Finance, Healthcare, Telecommunications, and Travel industries
with special expertise in Data Warehousing, Big Data, and Analytics including hands-on
technology experience. His patent-pending technique in project management, “Project Behavioral
Coaching” TM
, has been widely acclaimed as an innovative and disruptive force in project
management that recognizes the assessment of human behavior as critical to the success of all
projects and his article on same have been featured in LinkedIn’s online “Pulse” magazine.
Scot’s market analysis of consulting firms in the southeastern US, pro-forma for a differentiated
management consultancy and plans for revenue streams, social/digital media marketing presence and
presentations convinced Hamilton-Ryker, the largest privately held staffing firm in the southeast, to
invest in his concept to launch a consulting firm with strong competencies in improving IT delivery.
He led the strategy for startup of the consulting organization and managed operations of the
company. He was responsible for ensuring the firm delivered superior results to the client,
which included everything from staffing & recruiting coordination for turn-key client projects,
to research and development for our methods, techniques, and supporting technology.
Scot’s work at Blue Cross Blue Shield of Alabama as VP of Technology, was primarily focused
on delivering strategy for the modernization of IT, development of COEs, as well as shared
responsibility with App Dev & Infrastructure to successfully deliver on systems and application
delivery projects across a $120M (annual) project portfolio. As Vice President Technology at
Synovus, Scot led the effort for the “TSYS Spin Off” – divestiture. With TSYS (largest credit
card processor world-wide) he acted as the Executive Program Manager while leading the IT
Professional Services Office at Synovus (TSYS holding company) reporting to the CIO. Additionally,
Scot has held senior positions at CapGemini and Ernst & Young where he drove success for
corporations through alignment of technology and business to achieve strategic goals.
Scot graduated with a BA in English Language and Literature from Columbus State University
as well as a Commission as a US Army Officer. He is a Desert Storm veteran and holds
certifications PMP, ITIL, and CSM. He has spoken at numerous conferences on the topics of project
management and human behavior, innovation, and successful change management in IT.

10. Drive Your Business
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