Pay Groups for Real Outcomes

By Peter Block

The way we design our pay system communicates in concrete ways the kind of organization we want to create. Rather than seeing pay as a determinant of behavior, stewardship thinks of pay as a way of communicating and affirming the kind of culture we want to create. So, we design pay systems that value interdependence, teamwork, success in the creation of products, customer satisfaction. The process starts when we begin to pay teams or units for real outcomes delivered, primarily in the form of variable pay—namely, salary increases and bonuses.

Every unit has a boss/banker, someone who puts up money in the form of a budget in return for a set of results. Achieving those results with fewer people, or faster, or with higher quality—or even exceeding those results—in each case returns a dollar value to the larger institution. It does not matter whether you are for-profit or not—what your unit does has a measurable value, so let that be translated into dollars for team incentives.

How does that work? How do you measure, for example, the value of a staff communications unit? Let the staff group bill for their services, and they will soon find out their value. If billings and demand go up within the organization, then let a percentage of the increased billings go for pay bonuses. If demand decreases, no bonuses.

The principle is for variable pay to rise and fall on team outcomes. If the work is so interdependent that team results are hard to define, then let the bonus ride with the larger unit—say, a whole production line, a whole mental health department, a whole school building, even an entire branch of the state highway department.

A classic example of this principle at work took place in a French class in a U.S. high school. In school, of course, grades are the equivalent of cash. The French teacher took seriously the goal of learning for all and was disturbed by the wide variability of performance in the class. He told the class that each student bore some responsibility for the learning of the total class, so 40 percent of their grade would be determined by overall class performance on tests. A radical act. After each test, he would post the range of scores and the class average. He would then give the class time to help one another. It was the best-performing class he ever taught.

The emphasis on the team does not rule out recognizing individuals. If someone does something outstanding and easily identifiable, give that person some money. This should be the exception, however. No one produces results completely on their own. Not even artists can bring their work into the world completely on their own.

Also, ensure that supervisory evaluations are not the basis for determining pay. The moment the boss’s judgment dictates pay for the employee, the organization is back to paying for approval and compliance instead of rewarding outcomes.
If people want to know where they stand with their boss, let them ask their boss for feedback. If employees are not getting it done, let bosses express their disappointment. We do not need money on the table to give meaning to these conversations.

Adapted from Stewardship: Choosing Service over Self-Interest, 2d ed. (San Francisco: Berrett-Kohler, 2013).