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Episode 13: How to pay people without performance ratings

“The value of an idea lies in the using of it.” Thomas Edison. 

In my recent videos, I explained why performance management systems  have failed. I also outlined the six universal truths that drive great  performance. So how can these principles be applied in organizations?  

I believe that performance management ought to be architected to elevate  individual and collective performance. The first and possibly biggest  barrier to overcome is arriving at a way to pay people without using  performance ratings. Here is an approach… 

• Separate different components of compensation, i.e. base pay,  bonus, equity 

• Write down principles for each component. They serve a distinct, yet  complementary purpose, and should not be conflated 

• Align compensation budgets according to these principles 

Transparently communicate principles across the organization. In the  words of French philosopher Michel Foucault, “The greatest barrier to trust  is opacity.” 

• Bring leaders together to make compensation decisions on their  people. Principle based decisions when made collectively will have  more fairness than those made individually