Ask the Experts | Hourly or Performance-Based Pay?

Question: Should service employees get hourly or performance-based pay?

Gary Elekes; Founder, EPC Training:

Well, that’s up to the company owner and the philosophy and culture that they’d like to drive in their organization. I happen to favor performance-based pay, I wouldn’t own or operate a company that wasn’t performance-based pay, but that’s culturally a fit with our business philosophies and how we approach it. I think that you can be successful in either one of those methods; I don’t think it’s really a question of “should you?” or “do you have to?” It’s more, How do you want to actually operate in terms of the company performance and the culture?

One of our core values in our company is peak performance, and a second value is operational excellence. So I think culturally we’ve set it up that we want people to be rewarded for peak performance. Performance-based pay allows me to pay them more money when they do peak-perform. Hourly is really a system that sets it up so that it’s a disincentive to be more productive. It’s actually an incentive to go slower, not necessarily an impact on quality.

So I think the question become what does the business owner want, what does the management function want?

The challenges that a lot of companies face on performance is how do we do dispatch, how do we do customer service, how do we do accounting, how do we do the office staff? So you want to tie those back to the budget and the performance metrics for the particular job. Performance-based pay isn’t the same as task-based pay, I think that’s an important point to make.

Performance-based pay is related to KPI’s, benchmarks, individual performance, and so you set up bonus programs that are in alignment with behavior patterns. So if someone performs better – let’s use call-booking for CSRs as an example – if we want 75% call bookings and they’re booking 85%, they would be given some kind of reward system based on the idea of their improvement over the KPI.

So the real trick is, what do you want as a company and how do you want your culture set up? And then align your rewards systems, not just pay plans, attached to that. I happen to favor the performance-based pay plans, but we have a pretty tight culture set up. I think that’s the big conversation you have to have before you answer that question.

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