Six Lessons on Performance Pay from the Private Sector

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Earlier this week, we posted a longer story about how the private sector does performance pay — and what lessons that holds for Ohio’s schools as we move from the current system of basing teacher pay and layoffs on seniority to one under which they’re tied to classroom performance.

The takeaways:

Doing it right takes time. In some organizations, senior executives spend as much as 20 to 30 percent of their time evaluating employees.

Build trust in the system. Employees should have a role in determining performance measures and setting goals. It makes employees less likely to cheat and more likely to work hard to meet goals.

Numbers don’t tell the whole story. In industries where it’s hard to find a single objective measure of these employees’ performance, a more subjective, individualized approach works better.

You’ve got to pick the right measures. Or: don’t be like Enron. Make sure your system doesn’t incentivize the wrong behaviors.

Use both carrot and stick. At Jack Welch’s GE, the bottom 10 percent of managers got fired and the top 20 percent got bonuses. Connecting performance to consequences is a good thing.

It’s gonna cost ya. Under a performance-pay system, the total amount a company pays its employees can be higher than non-performance based systems. In the private sector, higher corporate revenue can mean performance pay pays off. The financial equation for school districts isn’t as clearly in a district’s favor.