Pay for Performance LO21217

Winfried Dressler (winfried.dressler@voith.de)
Wed, 7 Apr 1999 23:00:00 +0100

Replying to LO21181 --

The term "Pay for Performance" points in my view to a conflict, that
shouts for compromise: Pay as high as needed and as low as possible and
make it fair for everybody.

METHOD

Yet Goldratt states, that compromising is never an efficient way to deal
with conflicts. Conflicts need to be "evaporated". This is done by
questioning hidden assumptions that may have been good approximations
which led to powerful solutions in the past, but at least one of these
assumptions became inappropriate meanwhile. Is it always possible to
evaporate a conflict? One cannot know, but it is a good methodological
assumption: It prevents from giving up the search for a possible
evaporation.

THE CONFLICT

What is the conflict in "Pay for Performance"? Let me use a metaphor I
learnt from Nalebuff/Brandenburgers Coopetition: In any business there are
two seemingly conflicting, yet necessary needs to fulfill: 1.) Increase
the cake (the task of cooperation) 2.) Share the cake (the task of
competition). (Coopetition = Cooperation + Competition)

Performance is part of increasing the cake. Performance is usually a
non-local property of the whole system and constrained by the weakest link
(with the system viewed as a connected chain of links), or whatever causes
the weakest link not to be stronger. Local performance depends on where
the constraint is: the contraint itself need to be exploited, the
non-constraints need to be subordinated to the exploitation decision.
Hence, performance does not obey the additive rule: The total performance
is not equal to the sum of the local performances.

Pay is part of sharing the cake. As long as pay is based on money, it
obeys the additive rule: One dollar for me is one dollar less for you.
Each dollar can be spent only once. The total pay equals the sum of all
individual pays.

The conflict between pay and performance is thus in the local property of
pay versus the global property of performance.

"EVAPORATE" THE CONFLICT

The usual way to evaporate the conflict is to make performance local. But
this is very difficult and the chances for individual performance
improvements are distributed unequally, making it unfair to link pay to
local performance or performance improvements if the local performances
are designed to serve the total performance.

Goldratt summerizes the required work ethics very provocative as "If you
have work, work as fast as you can, if you don't have work, wait." The
share of "wait" is out of control of the individual worker and depend on
whole system considerations. And although such "wait" can be spent to
participate in quality circles, maintenance etc., it is troublesome to
link pay to such engagement as on several occasions discussed on this
list. Another example for such trouble is the commision based sales
person. Besides differences in the characteristics of sales areas which
are out of control of that sales person, the real trouble begins, when
s/he is more successful than production behind can accomplish.

Another way to evaporate the conflict, is to make pay global. Although
this has been tried with money based payment, e.g. for team performance,
it is against the very nature of money (nature? one should not forget,
that money is a cultural invention of humans, with a lot of side-effects,
which still need trimming, continuous reinvention).

A typical global pay for performance, that need not to be devided is pride
about the global achievements, or trust in the ability to achieve the
required results and thus free space to breathe and grow. Any measure,
that can be credited fully to anybody who participated in achieving the
performance, as minor as it may have been, would work. Money is obviously
incapable of doing this. Whenever we discussed this thread, a lot of great
suggestions were made on such global and as such, non-monetary "payment".

THE ROLE OF MONEY

Yet always someone came up with the notion, that one cannot give up on
monetary payment. So what about this scarce resource, which hardly anybody
would admit that s/he has enough of it? (I heard about a study according
to which people, when asked, how much money would be enough, state that
about 30% or one third more would be exactly what they need to satisfy
their needs - independent from their income. If someone of you LOers
happen to know the source, please share.)

I can only share my answer to the question of the role of monetary pay, as
I have done before. I avoid the conflict by switching the direction of the
cause-effect relationship. For me, monetary pay is not the effect of the
cause performance. I always view pay as the cause for the effect
performance. I should add, that this cause-effect relationship is highly
nonlinear. I just need a certain amount of payment to become free to
engage in work which finally should contribute to some kind of
performance, of which I need to be able to be proud about.

LINK TO THE SEVEN ESSENTIALITIES

Finally, let me try to link the discussion above briefly to At de Langes
"Creative Learning".

For the seven essentialities are all necessary conditions for emergences,
it would be sufficient to cause immergence, if there is a conflict between
any two of the seven essentialities. So, if such a conflict is perceived
or pops up in reality, it is a sure sign for an impaired essentiality
behind - usually a misled or invalid assumption/belief/mental model in the
world of mind. Such a conflict must be evaporated, compromising would not
help. May be it is the first, desparate step to note, that there is no
compromise, no valid trade-off possible between essentialities. But for
this first step to go, a study of the conflict (as in academia) is not
sufficient, one need to live the conflict.

At de Lange used the conflict between Herzog (sureness) and Smuts
(wholeness) on several occasions to illustrate the dynamics that finally
led to the immergent "solution" Apartheid in South Africa. A few months
ago, I stated, that such a conflict between wholeness and sureness is also
prevalent in business world. My thesis was (whether I stated it in this
form or not), that such a conflict prevents performance. In my eyes, it is
one of Goldratts clarifying contributions to establish sureness without
compromising wholeness.

For example, the role of measurements is to establish sureness on the
business. But as long as measurements are based on the (wholeness
impairing) assumption, that the total performance is just the sum of local
performances, sureness will remain uncategorical with respect to the
overall purpose of the organisation. Even worse, the push/pull relation
between tacit (sureness remains impaired) and formal knowledge
(established measurements) is broken, drying out learning and finally
creativity.

So far, we have a very complex picture of performance and whether
performance is inhibited by a conflict between wholeness and sureness.

Now, how does pay enter the picture? I assume, that pay for performance is
especially of interest, when performance is judged as insufficient. The
question, how to pay for performance is asked to answer another question:
How to achieve/yield/force improvements in performance?

Money is designed to represent the archetype of scarce resources, hence
representing a third essentiality, "spareness" (quantity-limit).
Answering above question with reallocation of money may work, if
performance is really constrained by unfavorable spending of money. But I
think in most cases, it is just blaming spareness for problems somewhere
else, e.g. in sureness or wholeness. One may say, that although systems
constraints always represent the essentiality spareness, it need not be
spareness, that is the systems constraint.

So my suggestion is, if you perceive a lack in performance, to scan all
seven essentialities, starting with sureness and keeping wholeness in
mind, whether one or more are impaired or in conflict. (Fruitfulness:
E.g. what about your relation to customers and vendors? Quality-variety:
E.g. is your offer to the market comprehensive? etc.) If there (form,
mechanics) is everything o.k. switch to check your expections about the
dynamics (chaos of becoming, emergent and order of being, digestive
phase). Are you giving enough time or are you too impatient? What is your
personal role in the game?

To summerize: The cure for a lack in performance may be in a change in the
pay system. But it need not be there. It is not even probable that the
cure is there. All seven essentialities need to be taken into account as a
form to hold the business as content together. This form itself is an
emergent of past performance and need reinvention from time to time as the
content grows.

My ongoing thesis is, that TOC provides a practical way to fulfill this
"continuous improvement program". At de Langes Creative Learning provides
necessary checks to overcome blind spots, which would jeopardise the
possible benefits of a completely applied TOC.

Is there still anyone reading, or did I lose you all on my path? I am
still just a student on what I write about here, trying to find my path
through this exciting new landscape. Although I would go my way also
alone, I prefer to have some of you around me to share our impressions.

Liebe Gruesse,

Winfried

-- 

"Winfried Dressler" <winfried.dressler@voith.de>

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