Performance-based pay and employee monitoring

One of the long-enduring dilemmas that has been pestering managers all over the world is the question how to determine workers’ salaries. Over the years, numerous schemes have been developed in an effort to find the best solution to this conundrum. Today, one of the most common methods internationally, is basing the payment on the worker’s performance, in one way or the other. – the “No Work, No Pay” approach, so to speak. In many countries, like in Norway, these kinds of methods are not so widespread, but in some businesses they have gained a foothold. Basically, the worker’s wage corresponds directly with the amount of work he or she puts in. Obviously, this kind of approach requires a system that accurately monitors and “measures” a worker’s performance.

In The Economist of May 25, 2013, an article under the title Making pay work revealed that while close employee monitoring may make it easier for managers to gauge an employee’s output, it may actually backfire because the pressure of being watched and strictly “measured” takes away other motivations, like being able to do an excellent job. In conclusion, the article asserts that “the extremes seem to be a better choice: monitor hard, or do not monitor at all. A little bit of monitoring only annoys the good workers, causing them to slacken off”.

If this is so, what is the best solution?

If there’s anything about this topic that The Economist has confirmed, it is that there is no single solution that would fit any company or organisation. My stand on this issue is this: close performance monitoring can be a good recourse, but only as far as it motivates workers, not induces fear or stifles their potential. On the other end, a lax monitoring system can only be effective if the management has thought of other ways to bring out the best in their employees. So, rather than being a question of effectivity, the problem becomes an issue of style. Since we now know that these things work either way, the only important question to ask is “What triggers can I use to boost employees’ performance? What do my employees value the most? What challenges them?”. These questions can only be answered if you actually know your employees. Until such knowledge is established, any option or approach – performance-based or not – will only be futile.

Knut Harald Nylænde is a business executive and well-known investor in Oslo. In his several English and Norwegian blogs, Knut writes about business, management and culture.