What If IT Pay was Performance Based?

Tuesday Aug 5th 2008 by Steve Andriole
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And while we’re at it, what about paying tech software and hardware vendors based on whether their products actually work?

Everyone complains about everything. Everyone says they prefer meritocracies to the political messes they find themselves cleaning up everyday. Really? How about performance-based compensation? Could you live with that?

Not long ago I pitched a consulting project to a very large company that I knew had some huge problems with how they did technology. I identified a number of areas where they needed help and where they could save a lot of money – I mean a lot of money – in the hundreds of millions of dollars -- annually. When I told them my fee – to save them money – they decided to skip the project.

So I asked them if they would fund the project as a percentage of what I actually saved them – not on any kind of fee basis. After I explained several times that they only had to pay me if I saved them money, they rejected the project again. Clearly, this company is run by idiots. Can you think of anything wrong with paying me – or anyone – based on their actual performance?

How about paying CIOs for performance? Why not set some metrics for making money and saving money with technology and pay them accordingly?

A trade magazine just published the list of the most highly paid CIOs and I noticed that many of them worked for companies that haven’t done so well recently (or since the CIOs have been there). These CIOs probably wouldn’t like performance-based pay -- or would they?

What if you were compensated at 5% of what you saved a company in annual technology expenditures? Let’s assume that the company spends a billion dollars a year on technology. Would you take the deal? Or, like a lot of lawyers, doctors, CEOs, senators and congressmen, would you prefer to get paid lots of money regardless of how well you perform? Sort of like it is today?

Shared-risk contracting is another flavor of performance-based compensation. If you hire an outsourcer to do support for your infrastructure but they screw it up, should you pay them? What if they refuse to work under any kind of shared-risk arrangement? Should you hire them to do anything at all?

Seems to me that outsourcers who fail to hit the metrics in your service level agreements should pay dearly, not just in threats to not renew their contracts but where it hurts. How about if a 5% “miss” that results in no fees until the problems are corrected (with, of course, absolutely no profit accruing to the outsourcer for the incompetence).

Let’s put 33% of every month’s fees in escrow and release the money only when the SLAs have been audited. I like that approach. It’s always better to hold the money when there might be a problem – than dispersing it and then trying to get it back.

Hardware and software vendors should also be paid according to their performance. If the software they sell us fails to solve our problems should we still have to pay them? If PCs, servers and other devices fail to deliver then why should we pay for them? What about all of the amazing promises CRM, ERP and other vendors make about their products? Why can’t we hold them accountable for what their code actually does for – and to – us?

True story: a couple of years ago I sent half of my cell phone bill to my carrier with a note that explained since the phone only worked half the time I should only have to pay half the bill. Of course they ignored my note and carried over the unpaid bill to the next month.

So I tried it again but this time I got a call that explained that if I wanted to keep my cell phone I’d better pay the bill. I was told that I was free to call each time a call was dropped, though I’d be charged for the minutes I used to complain. Phone companies don’t like performance-based fees. What a surprise. How many of us really do?

What about taking performance-based pay into the trenches? What about paying people by what they produce? Programmers, network managers, database administrators, Web designers and customer service representatives could all make a lot of money exceeding performance metrics for their specific areas of expertise. Or not – if they hang up on their customers.

Another true story: I was caught in the Air France strike last year and could not get out of the country. No one called me to tell me that my flight had been cancelled – not Air France or American Express which had booked the business trip for me. When I called for help to get home I was told I’d have to wait a week – or more – as I was staring as a screen from Orbitz telling me I could leave Paris in three hours if I really wanted to.

I told the AMEX travel “consultant” this and she told me that Orbitz could not book my flight home. When I suggested she go to the site, she hung up on me! (So I just booked the trip through Orbitz and got home with no problems.) Should Air France and AMEX get paid – well – for this performance? Where is the accountability?

Technology lends itself to incentive-based pay because the results of our work can be quantified. But how many of us would live this way?

Here’s how it should work:

1.) Everyone should define the metrics you would like to use to determine how much money you make (or don’t make) depending on your performance. Be generous here. If you think that you should be paid $25 an hour for mediocre work but $200 for truly excellent work, then you should define the mediocre/excellent continuum with specific performance metrics. If you are a high-level, well paid technology manager then your numbers will be much higher – and the ranges much wider.

2.) Hardware, software and service vendors should step up to shared-risk contracting and pure performance-based compensation. (This may be my last column after the vendor community organizes my demise.)

3.) Technology executives – especially CIOs and CTOs – should be compensated based on how much money they save (without compromising service) and how much money they make with technology.

Do you like this or do you hate this? For it to work it has to be universal: everyone in the organization has to be paid according to their actual performance. Put another way, we should strive to invalidate Woody Allen’s famous quote: “80% of success in life is just showing up.”

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