The vast majority of professional workers are paid salaries calculated on hourly rates. You work 40 hours a week in order to take home $X a month \u2014 this is not, technically, performance based. But if you \u201cwork\u201d all 40 hours every week and don\u2019t actually do anything, you probably won\u2019t be paid. Not for very long, anyway.<\/p>\n
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So in reality, there\u2019s a minimum amount of \u201cperformance\u201d we all need to achieve in order to get paid. In this article, we\u2019re going to look at some of the ways time-based pay can cripple productivity and seriously harm company performance. We\u2019ll also consider the alternatives and why companies might be averse to launching them.<\/p>\n
Do your employees have any incentive to work well?<\/h2>\n
It\u2019s common for bigger businesses to have the same job role executed by multiple people. Their workloads, objectives, and salaries are usually very similar. Let\u2019s assume you pay an industry-competitive rate for a 40-hours-a-week contract.\u00a0It’s fascinating to examine what happens when employees complete all their tasks but don\u2019t take 40 hours to do it.<\/p>\n
Sedate Simon<\/h2>\n
Simon is a model employee: turns up on time, wears a tie, gets his work done. But on average, he works 50 hours a week. Now if we ignore the culture of glorifying overworking<\/a> that\u2019s plaguing America, Simon is working 25 percent over his contracted hours \u2014 what should the company do about it?<\/p>\n Since his salary is based on an hourly rate, should he be paid 25 percent more? Not likely. In fact, despite putting more hours into the company, Simon is likely to be berated for being slower than other employees.<\/p>\n We could lower his workload so he can work the correct number of hours, but then he\u2019s contributing less than everyone else for the same pay. His slow output would, indirectly, make everyone else\u2019s superior output less valuable.<\/p>\n Emily is fantastic at her job. As well as being outgoing and personable, she gets all her weekly tasks done and dusted in just 30 hours \u2014 and in virtually all industries, she is penalized for it.<\/p>\n For a start, the vast majority of employers will then say, \u201cWell, here\u2019s another 10 hours of work to do.\u201d Fair enough\u00a0\u2014 she is contracted to 40 hours after all.<\/p>\n But Emily has now been given zero motivation to work efficiently. Her reward for completing tasks quicker and better than everyone else? More work, for the same pay. And if she requested to take the rest of the week off, say, after finishing all her tasks, it would almost certainly require a 25 percent pay cut \u2014 because she’s clearly contributing 25 percent fewer hours!<\/p>\n Simon\u2019s situation can be tricky, but it\u2019s people like Emily who are punished most by time-based jobs.<\/p>\n Every company\u2019s goal should be to get as much value as possible out of every employee. In their turn, they should pay fairly for that value.<\/p>\n If you\u2019re going to employ Simon to work 40 or 50 hours a week to complete X, then you should jump at the chance to hire Emily to do it in 30 hours. Then let her take the time off or work 6-hour days or whatever she wants \u2014 the net gain for your business is simply greater this way.<\/p>\n This is the ultimate problem with time-based salaried work: it enables less-committed employees to do the absolute minimum, and offers your best employees zero incentive to do good work. You can\u2019t have your cake and eat it too \u2014 the role is either time based (which incentivizes taking as long as possible to do work) or it\u2019s outcome based, in which case you should cheer when someone can deliver your outcomes in less time.<\/p>\n Hours worked is not \u2014 and has not been for a very long time \u2014 any reliable indicator of performance. If companies want to retain talent (and that\u2019s something they are seriously struggling to do) they need to embrace a complete shift in mindset that rewards employees for creating value, not sitting at their desk.<\/p>\n How do you replace your time-based contracts? Make your contracts outcome-based.\u00a0Wasn\u2019t that easy?<\/p>\n Every company has some form of review system: the manager sits down with the employee and prescribes (or preferably agrees through mutual discussion) a set of goals or outcomes for the next period.<\/p>\n Outcome-based contracts are a simple extension of this. Every week, you sit down (virtually or in-person) and agree on the goals for each team member and what that work involves. Over time, you\u2019ll all figure out the right balance of workload and responsibilities. And thanks to the massive increase in ownership, trust, and feeling of empowerment, your team\u2019s productivity will skyrocket.<\/p>\n If you\u2019re already thinking, \u201cNo way, that could never work in our company,\u201d I\u2019ll bet my retirement savings it\u2019s because of trust. Too many employers hear a statement like, \u201cGive your employees the objectives and let them sign off whenever they\u2019re done\u201d and assume they\u2019ll get screwed over:<\/p>\n But these assumptions couldn\u2019t be more wrong. The reality is that giving workers control over their hours makes them more productive and more reliable<\/a>. And the incentive to be productive is intuitive: if they work well and efficiently, they get more time doing whatever they like to do.<\/p>\n It\u2019s also worth noting that the vast majority of employees care about the quality of their work. Giving them the chance to work fewer (but better) hours will not impact this quality. And for the minority who would jump at the chance to work less and submit sloppy work, well, they would\u2019ve done that anyway.<\/p>\nEfficient Emily<\/h2>\n
The fallacy of hours worked versus value generated<\/h2>\n
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<\/p>\nHow we can replace time-based contracts<\/h2>\n
“That sounds great, but it couldn\u2019t possibly work for my company\u201d<\/h2>\n
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