Why do pay for performance programs fail?

The main reason for failure is that the organization stops assessing the program and tracking how well the program is performing. But there may be several other reasons.

Inflexibility. Some programs fail because they are introduced in an inflexible fashion. They are put into place with the implication that they will be there forever. The inflexibility makes it hard for the organization to restructure the program when conditions change.

Loss of management will. Programs also fail because management essentially loses its will --management still forces the system to provide some payment, even when the program is not going to provide a payout for good reason such as goals not having been met.

Lack of training. Supervisors are not taught how to set standards and how to administer the pay for performance program. For example, if supervisors must use a complicated merit matrix that has not been explained, it is hard for them to support the system. They will ignore the system or play games with it.

No buy in. Top management often does not buy into the program. The attitude of the CEO sets the tone. The organization can preach pay for performance. But if the CEO has a paternalistic attitude that results in rewarding everyone the same, the managers will be less likely to make the tough calls because there is no accountability for making sure that below average workers get below average raises. Similarly, if a manager is questioned or criticized for giving large raises to good performers, rather than being praised for identifying and rewarding superstars, the manager is less likely to take that risk.

Poor communication. Resistance usually stems from a lack of communication and education, coupled with the fear of risk, the fear of losing power and control, the perception that the program is a take-away and not an incentive program.