August 24, 2009
When Was “Pay-for-Performance” Born?
– Broc Romanek, CompensationStandards.com
I’m nearly back from vaca – here is another blog that I tee’d up to be posted in my absence. This one relates to a question that I received from a reporter: “When did the concept of ‘pay-for-performance’ first begin to be used?”
Now this was a hard one to answer with precision since the true answer is the beginning of time. The only reason that anyone would pay anyone else is to receive some form of performance (or in legal terms, in exchange for “consideration.) But the reporter was referring to the movement in the executive pay world where plan design is more sophisticated. And since I am a relative newcomer to this area, I leaned on an old-timer for his input. Here is what I gleaned:
Pay for performance goes much farther back than 1994. Recall that one of the reasons for Section 162(m) was to ensure pay for performance ( and avoid taxpayer subsidies in the event pay was not performance based), so it had been an issue well before then.
So I would say either 1982 (the beginning of the bull market) or 1977 (when Peter Drucker submitted an op-ed to the Wall Street Journal arguing that management pay not exceed 25x’s the pay of the average employee).
Send me your thoughts if you disagree (or agree)…