2. PAY MORE THAN AVERAGE If you have provided adequate baseline rewards and established internal and external fairness, consider borrowing a strategy first surfaced by a Nobel laureate. In the mid-1980s, George Akerlof, who later won the Nobel Prize in economics, and his wife, Janet Yellen, who’s also an economist, discovered that some companies seemed to be overpaying their workers. Instead of paying employees the wages that supply and demand would have predicted, they gave their workers a little more. It wasn’t because the companies were selfless and it wasn’t because they were stupid. It was because they were savvy. Paying great people a little more than the market demands, Akerlof and Yellen found, could attract better talent, reduce turnover, and boost productivity and morale. Higher wages could actually reduce a company’s costs. The pay-more-than-average approach can offer an elegant way to bypass “if-then” rewards, eliminate concerns about unfairness, and help take the issue of money off the table. It’s another way to allow people to focus on the work itself. Indeed, other economists have shown that providing an employee a high level of base pay does more to boost performance and organizational commitment than an attractive bonus structure. Of course, by the very nature of the exercise, paying above the average will work for only about half of you. So get going before your competitors do. 3. IF YOU USE PERFORMANCE METRICS, MAKE THEM WIDE-RANGING, RELEVANT, AND HARD TO GAME Imagine you’re a product manager and your pay depends largely on reaching a particular sales goal for the next quarter. If you’re smart, or if you’ve got a family to feed, you’re going to try mightily to hit that number. You probably won’t concern yourself much with the quarter after that or the health of the company or whether the firm is investing enough in research and development. And if you’re nervous, you might cut corners to reach your quarterly goal. Now imagine you’re a product manager and your pay is determined by these factors your sales for the next quarter your sales in the current year the company’s revenue and profit in the next two years levels of satisfaction among your customers ideas for new products and evaluations of your coworkers. If you’re smart, you’ll probably try to sell your product, serve your customers, help your teammates, and, well, do good work. When metrics are varied, they’re harder to finagle. In addition, the gain for reaching the metrics shouldn’t be too large. When the payoff for reaching targets is modest, rather than massive, it’s less likely to narrow people’s focus or encourage them to take the low road. To be sure, finding the right mix of metrics is difficult and will vary considerably across organizations. And some people will inevitably find away to game even the most carefully calibrated system. But using a variety of measures that reflect the totality of great work can transform often counterproductive “if-then” rewards into less combustible now that rewards.
