0% Variable Pay | 100% Happiness

 I had the privilege of attending a talk on Entrepreneurship by the Managing Director of one of the largest cement companies in India, with market capitalisation of ~ 60k crores

One of the key takeaways for me was his statement that his company does not have any Variable Pay, built into the Compensation Structure of employees. The entire CTC is Fixed. 

He said that the moment you go for Performance Appraisal, Ratings and Differential Variable Payouts for your Top 10 employees , you invariably end up causing heartburn for the remaining 90. Because of the inherent bias and subjectivity in the ratings process, this is bound of happen. So you have complaints and unhappiness

And he says, the motivation for superior work performance has to be intrinsic; not a bonus cheque or ESOPs

This sounded like a fair point to me.

Do rewards motivate people? Absolutely. They motivate people to get rewards.

Often I talk to friends in corporate houses/professional service firms and the common thread of discussion is how the variable payout for this year will be for them.

The fixed salaries that come each month are taken for granted :) And only thing which matters is the bonus !!!

So much energy is frittered, so many hearts are broken and team productivity goes for a toss.

Everyone is pressuring the system for individual gain. And no one is improving the system for collective gain. 

And then allegation fly thick and fast 

"Oh you know, he is a "Kiss Ass". No wonder, he gets 150% Bonus every year"

"I can only work and see my bonus. For good variable payouts, you have to complement the boss for his shirt every day. I can't do that sort of flattery"

For every winner , there are 9 losers who feel they have been short-changed.

But then the question arises that if the concept of variable pay is removed, how should a company incentive and reward its top performers ; how to motivate the top decile or quartile who've contributed the most to business goals ! :)

What are your views on this ?

Would love to hear from you !!

 Also please find a humorous video on this

Bhagwad Gita style Tips for Performance Appraisal in an IT company