Strategy & Leadership

Avoiding the Pitfalls of Merit-Based Pay Incentives

Donald B. Stephens is a 30-year senior customer service engineer. In this post, he examines how service leaders can steer clear of the hazards inherent with performance-based pay programs.

My manager looked me in the eyes. “You’re doing great,” he said with a smile. “You exceeded the amount of service calls you needed to take advantage of the pay incentive, which I really appreciate. But unfortunately, your reliability numbers dipped and that kept you from getting a payout this month.”

Merit-based pay, also known as pay-for-performance, is defined by the United States Department of Labor as “a raise in pay based on a set of criteria set by an employer.” In recent years, my company has attempted to incorporate merit-based pay into all of its operations — sometimes to less than desired effect in the field services sector.

“Any pay-for-performance system in field service should give rewards for any and all work done — no matter how small the reward might be. Period.”

Fortunately, they are committed to getting it right and have already fine-tuned the practice in an attempt to make it equitable and incentivizing for all. But there is still some work to be done. Here are a few observations that might help anyone in management implement such a pay strategy in an equitable, effective way:

1. Avoid Unfair (Or Constantly Changing) Criteria

shutterstock_135168752In my line of field service, we are responsible for a range of products, each with its own parts budget, reliability and fix-time standards. Thus we are given different amounts of credits for service calls depending on the machine’s complexity. This is a fair practice that is accepted by all. But more enterprising technicians have learned methods to cheat the system and accrue more credits than they deserve. Honest techs have a harder time meeting criteria that change based on the reported work of the less honorable. This is why you should make every effort to only use data that can’t be manipulated. Otherwise, you run the risk of alienating conscientious techs — and tracking corrupted data.

2. Don’t Subvert Other Goals

Pay-for-performance has been a part of the educational system in the U.S. for many years. There’s no dispute that we all want motivated, incentivized teachers to lead the next generation into adulthood. But not all programs that were designed to do that have delivered. Judging a teacher’s performance on his students’ test scores has led some teachers to “teach to the test,” prioritizing test scores over learning.

“We all must be wary of any system that creates a climate where students are viewed as part of the pay equation, rather than young people who deserve a high quality education that prepares them for their future,” says Bill Raabe of the National Education Association. How does this relate to field service? Ask yourself what goals have been set for your workforce.

  • Team trumps individual: Criteria based solely on individual performance can create tension and distrust among coworkers. Use team performance as much as possible to encourage cooperation.
  • Don’t skimp on service spending: Be wary of spending goals, which can lead to shortcuts in ongoing maintenance parts replacements and, eventually, to larger expenditures down the road. Foregoing the replacement of a $2 filter could cause the failure of a $1,000 power supply. Whenever possible, resist the temptation to add spending limits to a service tech’s pay system. There are other ways to conquer out-of-control spending.

3. Hard Work Must Be Recognized

merit-based payWhen I was told that I’d missed my reliability target and wouldn’t receive any incentive money, the news had the opposite effect than intended. I had worked hard that month and most of the reliability metrics we used were completely out of our control — that is, unless you were enterprising. I left the meeting wondering why I had taken that extra service call each day. After all, I could have slowed down, not worked so hard and still received the same pay.

Any pay-for-performance system in field service should give rewards for any and all work done — no matter how small the reward might be. Period. That ensures hard work always results in more compensation. Add multipliers for things like reliability, parts usage, response-time and first-time-fix metrics. Otherwise, you end up with a system that is nothing more than a carrot at the end of a very long stick.

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