Sunday, January 08, 2012

Pay for performance does not work

For the last 20 years, the concept of pay for performance has been the key driving force for the free market system. I have always been skeptical of this concept - as it encourages greed and manipulation. I am glad that there are now evidence to back up my gut instinct. See this report:
http://www.todayonline.com/Commentary/EDC120106-0000003/Stop-tying-pay-to-performance


6 comments:

  1. Manipulation is the right word. If the ceo's pay is based on 'performance' he can manipulate.
    What is performance? Is it revenue, sales turnover? Is it profit? If it is on revenue it is very dangerous. eg. a local insurance company can increase its revenue or increase the sales production and if the ceo knows his sales force is a bunch of greedy and would stoop to anything he can simply incentivize them by giving the salespeople higher commission,roll out new products more often, give them other incentives like contests, vouchers, overseas trips etc. The company sales production will definitely soar and the company will have bigger market share and become #1. All this at the expense of the customers.
    This is what dumb BODs wants to dupe the public.

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  2. Mr. Tan, you are absolutely correct.
    You can see some of the insurance companies are doing this. At all cost they are trying to be number #1 to prove to their bosses. They spent more than it is needed and at the the expense of return and the customers.

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  3. The NTUC's wage restructuring exercise certainly went wrong at the lower levels. It was meant to "cap" workers salaries while dismantling the old CPF structure.

    The middle income earners also had their salary 'capped', particularly via our CPF system. The middle rank got so frustrated especially those with household income hit by HDB's cap of $8K, rising costs and taxes. Then they faced retrenchment, income stagnation and FT's competition. This is particularly so in the private sector. Firms, particularly foreign MNC just do not bother what is variable wage system.

    The problem was extended to GLCs.

    The performance based system with variable pay seems to work very well only for Minister's pay and our civil service the last decade while ordinary wages were stagnant for the last decade which PM admitted himself.

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  4. This is the same concept used to justify the high pay of the ministers - based on the argument that we need the top talents to run the ministries - and they are expected to be the best in performance. We now know that this concept does not work with our ministers.

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  5. In short, experiences or tested methods from many companies/countries all over the world over the decades shown 'FAIR PLAY' works the 'BEST'. Under such circucumstances/conditions, the trust level is high, workers/people are responding and co-operating. The end result is PRODUCTIVITY rises to its maximum point. Some experts call it 'THE GENTLEMAN WAY'.

    When our late President Mr. Ong Teng Cheong was given the task of transforming NTUC in 1985, he completed the mission successfully and beautifully using 'FAIR PLAY' and doing it 'THE GENTLEMAN WAY'. Well-respected by Singaporeans and Mr. Ong is highly honoured today. I believe he is also gorified by God now.

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  6. Does Minister deserve their million dollars Salary? What have they done since they became Minister to justify for the Salary? No one knows. Especially those Minister in Quiet Ministry. While in the Ministry, who are the actual contributors? I think large part of the initiatives and planning are done by everyone else except the Minister. He is just like a CEO or MD i.e. Hear proposals, approves it and make it his during parliament. Getting his hand dirty? Comes out with super ingenious ideas? I don't think so. It is always easy to say Ministers deserve that kind of Salary but the public doesn't know what that Minister has done. There is a possibility that the Minister did noting and the result was just delivered by perm sec or PSC scholars and the Minister just reports it.

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