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 havent done so well recently (or since the CIOs have been there). These CIOs probably wouldnt like performance-based pay -- or would they?
What if you were compensated at 5% of what you saved a company in annual technology expenditures? Lets 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).
Lets put 33% of every months fees in escrow and release the money only when the SLAs have been audited. I like that approach. Its 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 cant 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 Id better pay the bill. I was told that I was free to call each time a call was dropped, though Id be charged for the minutes I used to complain. Phone companies dont like performance-based fees. What a surprise. How many of us really do?