Re: Incentives LO1253

John R. Snyder (
Tue, 16 May 1995 22:01:14 -0600

Ivan Blanco (LO1225) wrote:
> I don't know if there is any statistics to prove that the heavy
>reliance on pay for performance is a very flawed system. I think that we
>might have to go out of the western and westernized world to find systems
>others than those who compensate (or try to) performance.

No, we don't have to go that far. A significant number of companies are
trying skill-based pay systems. In a skill-based pay system, people are
paid according to the skills they are able to master. Pay increases are
tied to demonstrated learning, not to performance. The company usually
uses some kind of benchmarking to determine what a particular skill is
worth in that industry. Some companies try to blend skill-based and
performance-based systems.

Gerald Ledford of the Center for Effective Organizations at U. Southern
California led a major research study on 97 skill-based pay systems about
5 years ago. The study was sponsored by the American Compensation
Association, a professional organization for HR specialists in
compensation. Among the conclusions of the study: "the success rate for
skill-based pay plans appears to be very high," "high levels of employee
involvement are a favorable condition for success," and "specific design
decisions appear to be less important than contextual factors such as
management philosophy."

I know about this study only because at the time Ledford and crew did the
research, I was chairing the steering committee that managed such a
compensation plan in a major telecommunications company. I got to fill
out Gerry's 40 page questionnaire. I've been a strong advocate of
qualitative research ever since. ;-)

(I'm not saying that skill-based pay is necessarily the answer -- I'm just
pointing out that many compensation experts are also looking for ways to
go beyond pay for performance.)


John Snyder
Innovation On Demand                "Understanding is an adventure, and
Round Rock, TX                       like all adventures, is dangerous."                                    - Hans-Georg Gadamer