Friday, May 19, 2006

Microsoft's Pay For Performance Plan

Microsoft changed their pay for performance compensation plan yesterday. The old plan created employee resentment. You would resent it too if this is true.

"The existing system doles out bonuses and promotions based largely on a controversial numerical rating scale. The number of employees who can receive a top score is fixed, sometimes forcing managers to give a lower score to a worker even though he or she might have performed at the same level as a peer."

That system didn't reward performance. Here's the new system.

"This ranking will still have a forced distribution or curve, with 20 percent of employees in a peer group classified as "outstanding," 70 percent as "strong" and 10 percent as "limited."

This system won't work either. You can't put limitations on your employees. If you do, they will limit themselves.

What if every employee had the same right to a top score? Here's an example of a true pay for performance plan. You guessed it. It's the pay for performance plan for Two Maids & A Mop.

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