You Get What You Pay For

Steven Cesare, Ph.D.

A business owner from Virginia called me the other day to talk about various issues including his company culture, employee productivity, and compensation plans. As readers of this column already know, those three issues must be optimally aligned, intertwined by the company’s business goals. It all starts with the goals. It always starts with the goals, supported by key initiatives and best practice behaviors designed to achieve those goals, reinforced by accountability systems to ensure employees attain those goals.

In case you forgot: It all starts with the goals.

Without the destination, no map is useful.

The owner acknowledged his company culture has made advances in defining, rolling out, and holding staff accountable for the goals, though further refinement is required. An honest assessment; a work in progress.

As our conversation continued, he expressed concern that his field employees were not at his desired caliber regarding work ethic, professional polish, and team cohesion. Notwithstanding the goal ambiguity mentioned above, as a capitalist, I asked him to review the placement of his employees’ current hourly pay rates within their respective wage and salary scales (e.g., Maintenance Foreman, Construction Specialist, Irrigation Technician) to determine if any linear relationship existed between pay and productivity.

Not really.

In fact, his analysis revealed that most employees were paid at or near the low end of their wage and salary scale. Wal-Mart say hello to Nieman-Marcus; Budweiser meet Cristal; Prius let me introduce you to Rolls Royce. This same pattern applies to employees; all employees, field, management, office, sales, etc.

You get what you pay for.

I know the economy is tough. I know labor costs are out of control. I know there are cost pressures. We all know those things. That is why we must design an integrated system based on departmental revenue goals, production rates, gross margin goals, and employee compensation. If any aspect of that relationship is imprecise, imbalance, inefficiency, and ineptitude are inevitable.

It is my view that the field organization (e.g., Operations Manager, Maintenance Manager, Construction Manager) owns these processes. Maybe I’m visiting from a different planet, but aren’t they infinitely closer to the employees, jobs, and customers than the owner? Accordingly, managers should be paid and bonused meritoriously on their individual ability to define, convey, and achieve their respective departmental goals (e.g., revenue per employee, gross margin, employee staffing levels, job quality).

By the same token, are the department managers underpaid relative to the local labor market? Conversely, are they overpaid relative to their ability to achieve their departmental goals? Similarly, is their weekly salary disproportionately inflated compared to their success-based bonus potential, which substantively evinces true merit pay? Are the managers routinely held accountable for staffing their own departments, tracking each employee’s hourly average wage, and coaching them to achieve performance standards? The owner should not have to hold the managers accountable; the managers should hold themselves accountable based on their departmental-goal-to-forecast variance each month, all the while anticipating the trend line culminating with the end of the fiscal year results and adjoining performance review.

Thus, whether we expect too much from field employees who are systemically underpaid, or are overpaying for underperforming managers who do not reach their goals, we have to remain capitalistic in that we should get what we pay for. If we underpay for field employees, we are going get underperformance; however, if we overpay for management staff shouldn’t we receive overperformance?

Getting what you pay for, works both ways.

If you don’t believe me, try using that Wal-Mart coupon at Neiman-Marcus.

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