How should we best distribute the rewards for the production of value in order to maximize future value output?
The answer to this question is quite different with knowledge workers than it is with clerical, industrial, labourer, or agricultural workers. All of those latter roles do transactional work (I call them collectively “transactional workers”) which can be accounted to the individual so that we can pay for individual productivity. Knowledge workers are different. It is difficult and expensive to measure the work, and value is produced collectively, cooperatively, not by individuals.
Embrace the diversity of our people. This includes a diversity of capability. You will never have every individual being exceptional, of maximum capability. Nor will any individual maintain their capability level constantly over time.
When people work as a team they all contribute as best they can, and it is the collective outcome that matters.
With knowledge work it’s all but impossible to quantify the contribution of each individual anyway. They are working collaboratively, so what might appear to be the product of one individual has had help, advice, and teaching from others. Not to mention moral support. The major contribution of some people to a team is just to make them feel good or to keep them tracking to their values. This is invisible to the conventional metrics-driven manager.
If you’ve got a high performing team, that is all that matters, as the value is produced by teams not individuals.
If individuals are not performing well, there are a number of reasons for this. Only in a minority of cases is it because they lack competence. If somebody genuinely is not pulling their weight, then, once management empower the team, it is the team that will surface this issue and deal with it.
Therefore, stop trying to measure and incent individuals. All you do is set them in competition with each other for scarce pay resources, which breaks the teamwork and reduces value delivered.
Pay the team, or better still the team of teams. We don’t want to set teams in competition with each other either. Everybody should share in the success of their organisation or at least their organisational unit.
There is another way to reduce people competing for scarce pay resources. As well as paying at a group level, you should also consider paying more. As a global trend for the last half century, profit-taking has been excessive. The more you share with your workers, the greater the ongoing success will be.
Interestingly, it has been shown many times that applying this approach also increases the productivity of transactional workers as much as it does for knowledge workers. If you drive transactional workers individually, you will stifle cooperation and innovation, reducing productivity and improvement. If we treat transactional workers as humans not machines, and allow them to work collectively, cooperatively, for mutual benefit, we will have a more successful organisation in the longer term than if we treat them as wage slaves, and drive them individually with carrot and stick.
It works everywhere: pay collectively and pay more.
I’v written in more detail (and evolved thinking) here