ImageFor more than 2 decades companies have sought help ranging from sales to software engineering.  The proposal enriched with ‘potential’ but absent of the basic support required to set the course for potentially amazing success.  In those years past it wasn’t all that unusual to accept such an offer, after all the ability to create outcomes was for the taking.  Services were in demand, software could be created nearly instantaneously (possibly even using some prior non-proprietary work performed) and it could all be done at the bat of an eye.  Since those early years allot has changed and not for the betterment of those asked if they wish to be involved in a pay for performance contract.

I think just about anyone can appreciate the fact that when we pay someone based on delivering a service this is a very favorable position.  If I contract to paint a house and perform the work then I expect to get paid.  But here are some of the issues with the ‘pay for performance agreements’.   First of all you have to purchase materials, hire workers, perform the work and possibly even have to rent some of the speciality equipment to do the job.  You perform this work to an exacting standard that is limited to choice of paint color for the property.  Now the day of payment comes along and either the property owner doesn’t have the money, doesn’t like the work because they were expecting something different (which they hadn’t specified) and has now told you that they will pay as soon as they sell the property.  While this may be the tactic used by those who are trying to take advantage of your services its often the case that the property owner is in fact financially inept.   Almost all contracts driven by the ‘pay for performance’ paradigm sit in this very state.  They find it a convenient way to get work done and you the contractor assume all of the relationship risk.   Reflected below are some of the real issues,

  • weak, inadequate and non-existing operating investment, by the contractor, spill over to those that may engage to perform ‘pay for performance work’,
  • ‘pay for performance’ contracts overlook fundamental time and cost investments needed by those doing the work,
  • ‘pay for performance’ often presents a glorious future but fail to show the rocky path to get to that point.  Such matters as pay to be received after customer payment to the contractor and contractor delivery performance itself can put your payment at risk.  You did  your part… but now you are deprived because of matters outside of your control.
  • To further sweeten the deal is renewals and what you will get paid without any real additional work.  This is a shot in the dark… it again depends on service delivery and outcomes both of which may be a bit misguided and represented by the contractor.

As a person or company considering ‘pay for performance’ its best to use these as a fill in when you have a lead as a part of your normal business that might provide value to the particular client.  But its the result of cast off opportunities and not proactive pursuits.   For all others the concept of ‘pay for performance’ simply doesn’t make sense because you are taking all of the risk that isn’t being shared by the direct beneficiary of the work performed.

I know allot of companies use this model to remove uncertainty and to force performance.  But keep in mind that if you are asking someone to float your business pursuit on their backs it will seldom work.  People and companies can only be so benevolent and when doing so they wish a bit of leeway in terms of payment certainty.   Recently I was asked to do a ‘pay for performance’ engagement.  My first inkling came from the fact that an opportunity was offered but no financial terms discussed.  Its sweet tone, driven by responsibility and title, was set as a bait for me to take (but too many years, despite friendships, have taught me to be cautious).  When I presented the question directly was when I was first told that it was a commission only, another name for ‘pay for performance’, arrangement.  To soften the negativity accolades were given about my talents, abilities, experience and client connections.  Again I refrained for falling for these appeals to my ego, after all if all this was so special then why wasn’t some stipend paid to cover a portion of my out of pocket expenses and a wee bit of my time?  It is once again… a part of the ‘pay for performance’ dance.   One has to make a decision whether to say NO or whether to ACCEPT.  In my case I chose to strike a solution in between which pointed to an inadequacy in the success formula of the contracting company…. that is lead generation.  They had no lead generation, market promotion or even specific focus on who they were wishing to specifically attack.  Aside from the most general of general field views one could not possibly consider it any shape or form a plan for success.  I suggested that if they would generate leads I would followup and sell into these organizations for a straight fee to cover my time and expenses.  You only pay for what you use and create.  As an additional suggestion I proposed a monthly stipend that would entitle them to a fixed number of contacts, again generated by them, but would also include serving as a regional representative for their entrepreneurial enterprise.   In short, both were rejected.   I don’t think that the numbers were out of line and in fact they were quite reasonable in the face of local labor standards.  It seems that their ambitions are captivated around a model that doesn’t work and they can’t see their way to consider alternatives in which they take on a portion of risk to their own benefit potential.

So, where does this all leave us??

  1. Companies must realize that fundamental capitalization is required for ALL endeavors.  If you don’t have the funds obtain them, generate them or avoid the pursuit (regardless of the merits).  I suspect that the pursuit, while being a great idea, still has some doubts in their mind that the markets will accept them.
  2. Individuals must understand the degree of risk they wish to undertake.  In doing so also be willing to take on the costs, which in real terms are the out-of-pocket expenses.  Your time… well you have to decide whether you wish to put that at risk or not.  For me if I have the choice of working for nothing and spending money that I may not be able to recover I just as soon do something that will put food on the table.
  3. Pay for Performance isn’t all bad.  Its only bad when conditions are such that readily available cash flow can not be achieved to recover personal investment risk.   Rapid turnaround, ready market, and commodity sales are all types that may be suitable for ‘Pay for Performance’.  Even then you still need to ascertain the extent of risk and personal self investment that will be required.
  4. The value of Pay for Performance is not with skilled, experience and professional resource candidates.  The disconnection between the question of performance and the elevated performance potential carried by professionals is significantly different and must give way to model concessions.

In short, am I in favor of ‘Pay for Performance’?  I would have to say no, even as an entrepreneur who might wish to defer risk to the candidate.  It is my feeling that even when done that it doesn’t create a climate that will optimize potential.  Robbing innovation, creativity and ambition the candidate becomes fixated on survival and personal cost recovery.  This does very little to creating a durable pipeline of opportunities or to endear a lasting relationship that affords experience development.

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