FAQ: Why Not Accept Performance-Based Payment?

This is a rather unpleasant page to read for many business owners who have been brainwashed into the harebrained and self-destructive concept of using pay-or-performance on external professionals. So, let's clear up the misunderstanding...

My work is like making bread. But I'm only a small part of the process and one ingredient. Let's say, yeast, If you use shitty flour, fail to knead the dough properly or your oven is not hot enough, then not even the best yeast can help you to make great bread. If you miss the salt, you can't sell your bread because it will taste silly.

I'm just one of the many factors in your project's success. And I'm not willing to take financial responsibility for other people's contribution, including whether or not they drag their lazy arses out of bed in the morning and work on the project as we've planned.

In a gold-mining context, you may say...

"Tom, this is what we'll do. You buy the mine, buy the equipment, sort out the paperwork, hire the people and start digging. You find the nuggets, clean them, sell them and hand the money over to me. Then, provided I'm satisfied with your work, I'll give you a small percentage of the money that you have produced."

My contention is that if I were able to single-handedly produce money without your participation, then why would I give you even one cent?

The fact is that any pay-for- performance scheme - or rather scam - alienates people from your company, and they start working for themselves, which often means working against their clients.

Look, I can focus on short-term profits, sell a lot of stuff, and by the time the returns start coming in from pissed off clients, I'm gone with your money.

Then you have to deal with those infuriated clients.

Here are some disadvantages of pay-for-performance...

• It promotes short-term gains at the expense of long-term success, prosperity and profitability
• It obsesses with gross revenue but ignores net profit
• It destroys teamwork
• It focuses on individual gain at the expense of organisational profitability
• It promotes internal competition
• It encourages duplicity and expediency at the expense of integrity
• It builds insecurity, fear and anxiety in people
• It promotes brown-nosing and sucking up
• It destroys excitement, enthusiasm and morale
• It promotes whore mentality: "We do anything for money"
• It creates costly attrition

In my experience, the best people in any profession are not motivated by money. They are well paid, but they don't do what they do for money. And the opposite is true too. People who are motivated by money are hardly ever better than mediocre.

For highly talented people, compensation ranks at 7th place, way behind factors like "sense of belonging" or "professional fulfilment". And if you motivate your people with money, some day one of your competitors may offer them a bit more, and they leave you high and dry. Then you're in deep shit, and the end is near.

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