Career Tips: Remember this, You Are NOT Paid Based on Your Performance

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Take a moment and think about your salary, your bonuses and your stock options. What justifies how much (or how little) you make? Your education? Your Experience or seniority? Your company’s performance, or the cost of living in your city, or the industry you work in, or your individual performance?


Research has been done with thousands of full-time workers and hundreds of employers and other managers in the United States about what they thought determined an employee’s compensation package. Specifically, questions about “which factor do you think is the most important?” are asked to the workers and their answers are summarized.


The results of the research were unambiguous: no factor received as much support as individual performance. Among all the workers, two-thirds said it was a very important basis of their pay. Another 20% said it was somewhat important. Combined a full 85% believed their individual performance was an important determinant of the number on their paycheck.


What about those who actually help to decide the compensation package? The research also involved surveys of individuals in managerial and executive positions, all involved in pay-setting at their companies. Questions like “what factors do you consider when setting compensation levels for the employees?” were asked to those individuals. Similar to the survey of workers, the results were clear: no characteristic ranked higher than individual performance. Nearly three-quarters of this group of pay-setters listed it as a very important determinant of compensation.


These results aren’t particularly surprising. People’s belief in the importance of their own performance to their pay reflects a deep-seated cultural sentiment of individualism. It also reflects a longstanding, dominant tradition within academia that likewise views a worker’s individual performance as the core determinant of pay. Combined, these understandings reinforce a general tendency among ordinary people to locate individual economic success or failure within the self, rather than in broader political and economic structures.


The question is, however, are they right?

Simple answer is NO. The individual performance account rests on a set of myths about pay that are widespread, often uncontested, and misleading. And together these beliefs have held back progress fighting rising inequality and all the corrosive effects that flow from it.


By myths, I mean the following 3 myths in particular:

1. You can fully separate your performance from contributions of others. Paying you for individual contributions to your company requires measuring what, exactly, it is that you contributed. For a few select jobs, like door-to-door salespersons, the task is relatively straightforward. Then there are the rest of us. We work in jobs in which our contributions to our workplace are intertwined with the efforts of others. This difficulty in disentangling one’s individual contribution to the organization is especially acute in group-centered, white-collar occupations that have grown in size over the past decades. 


There are millions of these jobs spread across the world today: corporate consultants, markets, and mid-level managers of all kinds. For each of them, distilling individual performance into one quantifiable metric exceeds our capabilities not because we haven’t discovered the right measure, but because no such measure actually exists. 


2. Your job has an objective, agreed-upon definition of performance. As ongoing disputes in occupations ranging from policing, teaching, and software engineering, rare is the job in which everyone agrees on what constitutes the core mission. If you can’t identify a clear mission, how can you define what a good or poor performance is?


More than often, the missions are vaguely defined. And the evaluation of the accomplishment of the missions is largely based on if the management likes you. 


3. Paying for individual performance leads to positive organizational outcomes. In well-functioning workplaces, we learn from, cooperate with, and assist those around us. These interactions affect our own performance. But when an organization allocates pay simply based on some measure of individual productivity, cooperative workplaces can turn competitive, which can lower overall productivity. For example, in the 1980s Mayer Brown, the giant Chicago-based lar firm, shifted away from a seniority-based pay system toward one where the firm paid partners based on the business they brought in. this might seem like a logical way to measure value: calculating how many hours a partner has billed her clients and the value of the business she has generated doesn’t take an advanced math degree. Yet few firms allocate pay solely on this simple equation. Why? The infighting, sabotage, and general feelings of inequity such as the system spawns among workers. 


In this system, asking a colleague for help trying to land a client meant you’d be splitting the proceeds, discouraging collaboration that might help the firm overall. Further, partners “competed aggressively not just against lawyers at other firms, but against one another, ” trying to poach clients from their colleagues.


So, what actually determines your pay?

Power, inertia, mimicry, along with your company’s total revenue. 

To start, wage and salary determination involves the exercise of power and represents the outcome of past and sometimes ongoing power struggles. Power has the force to settle claims made in organizations over slices of the pie (company’s total revenue). Because of this, organizational inertia often prevails: past power struggles legitimize a salary or wage for a particular job over time, which limits our room to negotiate. Organizational inertia is evident when we think of a job as “naturally” paying a certain amount; that of course a developer makes more than a designer. 


Mimicry, where firms simply match the wages and salaries of their competitors, simultaneously simplifies the pay-setting process for employers while assuring core equity concerns. Paying the going rate in a particular labor market helps stave off workers’ claims that the salary on offer is unfair. But pay norms change and vary between workers, meaning that employers must always be on alert for disgruntled workers believing they’re not receiving their “fair share”, which can result in lowered productivity among the demoralized employees. 


With that, individual performance is a very minor factor when it comes to one’s compensation. This is especially true when we compare workers in different countries, industries and job titles. However, the employers would like their employees to believe that performance is the only deciding factor for compensation. This fact contributed to this widespread misbelief.


So my advice here is, do NOT work hard and hope your compensation will grow. Conduct a background research of the industry as well as the companies you are interested in.


What’s the average salary in a country’s job market for a specific job title? Who or which department in a company holds a higher power? Find answers to those questions. They will definitely help you better understand how you would get paid.


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