> I have to wonder if the tech staff was
> insulted or worried. Pay for performance
> entails risk as well as reward.

Speaking as a computer programmer, I agree you should pay people for performance and nothing else. However, it is seldom the case that peolpe with a sales background will be able to judge the value the more technical staff add.

For instance, if I went and told my boss (who has a sales background) that I just deleted 1000 lines of code and replaced it with 3, that might come across as not having done very much work. "Why did you replace that - it works perfectly", might be a reasonable reaction to that. However, those 3 lines might be less buggy, run faster, scale better, be able to handle more use cases etc. The same goes for that network administrator who just seems to sit there all day. What you don't see is the fact that he came in at 2am to replace a core router he noticed was starting to fail so you wouldn't get interrupted on your conference calls during the day.

I think technical people are more than fine with a meritocracy, so long as it's other technical people doing the judging.

The question really boils down to people getting a fair shake to excel. If the projects aren't fairly distributed, there will always be those that won't get the bonuses or will get less. As a manager, ask yourself this question, "If I assigned each of my staff to projects with equal challenges and each person successfully completed the project in the same amount of time, would the bonus be the same or would those that appeared to work harder (e.g., poked their head in my office more frequently or cc'd me on more emails) get the larger bonus? This is what those engineers are concerned about. Additionally, technical people like to feel solving technical problems with innovative solutions is the reason they get paid. They don't like to feel that they must compete with their fellow engineers.

Different kinds of people are motivated by different mixes of the club (do it or I'll beat the crap out of you), cross (it's the right thing to do), ego (you're so good at it), buck ($$$) and membership card (be part of the group).

Programmers have to have a big ego to believe they can do things many others cannot with technology so the Buck is usually less important than the ego to programmers.

The real issue is fair compensation. Why should programmers work for a fixed salary instead of by the hour? Usually these long hours of programmer toil are caused by a saleperson making a promise that the programmer has to keep. At my company, programmers are paid for every hour they work over 40 hours/week in the form of a bonus on their next check (not time and a half - they make to much for that).

If the programmer has no control over how much a product is sold for and all the other marketing and sales variables, how can you expect them to be happy with compensation dictated by terms outside of their control?

No one has mentioned yet one of the more obvious factors for the staff to be worried about - how do they know any bonuses will ever be paid? It might all be a fiction. "Variable compensation", in an area where contribution is subjectively judged, is ripe for company abuse of the employee. If you're told that it's OK for your salary to be below industry standards because of the bonus opportunity, but you never seem to see those bonuses, and you don't know anyone else who ever has, either, then they probably don't exist. It's just a way for the company to underpay the employees.

I work for a company that started out with a strong "pay for performance" ethic, based on the model you outlined. but as times got tough and money dried up, the bonuses got more and more rare. First, they were deferred ("We'll pay all bonuses at the end of the year"), then postponed ("No bonuses this year, but we'll make up for it next year"). At one point there was a system of concrete criteria with defined bonuses, which lasted about six months, until management realized that people were meeting the criteria and they were actually having to pay the bonuses. Finally, there was an initiative that quietly raised everyone's base salary, so they were fairly paid without bonus. As of right now, I haven't heard of anyone receiving any bonuses in over five years.

Pay for performance is fine, but how do you measure performance in IT? LOC? Fine, I will immediately pepper my source with massively useless intermediate declarations and assignments. Help calls/hour? No problem, I'll hang up after one suggestion. Uptime? Cool, I'll just restrict access to the server to three applications at any one time. Manager evaluation? Gotcha, and by the way, that's a mighty fine suit and tie combo, Nordstrom's? Peer review? You give me a 10 and I'll do the same for you. Lower costs? I can do that. You don't mind an 80286 running DOS 5.0 do you?

As a side comment to all of this. There are people that can somehow always appear busy no matter how little they do. There are also people that produce a lot but just don't ever appear busy. Most people fall somewhere within this range with the addition that they will produce varying quantities of work that doesn't necessarily line up with appearances.

I have found that most objections to variable compensation seem to come down to having a generally conservative nature and/or the feeling that their relative quantity of work won't be recognized.

In my entire career, both technical and non-technical (finance...), I received a bonus once - and I've been in the work force since 1978.

I firmly believe that your hourly rate or salary (whichever is applicable) should accurately reflect the duties which you are expected to perform --AND-- that the duties you perform are performed at least as well (emphasis on "at least") as expected.

Bonuses (if any) can be tied to specific, above average performance, but I truly feel that base compensation should, as stated above, accurately reflect the job you are expected to perform.

If the company you are associated with does not pay bonuses (and few do these days to the best of my knowledge), and you feel that you are underpaid, maybe it's time to look for a different place of employment....

It might clarify the situation to start from the beginning. Every job I have had (across technical, managerial, and sales jobs), and I think for most people, started the same way – the employer offered me a compensation package for work to be done over the coming year (not for what I had done the previous year). Past performance over many years (not just one), with more weight given to recent demonstrations of capability, was used in the negotiations for the upcoming compensation package. In reality, for each succeeding year we made a similar agreement; I never really got a raise as compensation for past performance (I already had been paid according to the terms of the previous agreement). What the company offered also reflected what they needed in the coming year – if they did not need my skills as much as they had before (e.g., the winding down of a large project), the “offer� showed that (irrespective of how well I had done the previous year).

For variable compensation (no matter how it gets dressed), as many of the other commentators noted, employees have legitimate concerns about the accuracy and objectivity of the measures; they don’t inherently object to a variable component of their compensation (e.g., shares of stock in the company, profit-sharing plans, ESOPs, etc.). Oh, and by the way, Boss, these measures and the rewards are independent of anything beyond my control, such as overall company profitability, right? You say they are completely independent – good! I feel glad we got that straight! See you bright and early tomorrow.

I have only rarely heard of technical staff getting variable compensation. This is the domain of sales and marketing. And technical staff usually disdain sales and marketing.

The problem that Comp'ed outlined, I would say, was that a major cultural change was being proposed. The founder was completely clueless about introducing such a change. It probably shouldn't even have been attempted.

In the rare case that bonuses have been awarded to lower level and technical folk, they have been based upon overall company performance, not individual performance. Some would say that's great, it promotes teamwork rather than cowboy individualism. And that's largely true.

However, what if you are doing a great job and the company is floundering? Company performance can be at odds with what the individual is doing. You can also have a slacker running on empty, but their shortcomings are made up by all others in the group.

All that aside, I still say this is a giant cultural change. It can be done, but I question the ultimate value, and the amount of political capital expended required to get such a system going. You are always going to be swimming against a tide of industry norms.