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Matt

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Know a startup Head of People looking for answers 🙋 why not forward this to them for some instant karma? ✨

You've sat in that calibration room. You know the one. A manager fighting for a rating their direct report probably deserves, another quietly sandbagging because they've already spent their budget, and you're thinking: this is supposed to make pay decisions fair — so why does it feel like the least fair room in the building?

I had that exact feeling a couple of weeks ago, except I was on a virtual stage.

I got up at the wee hour of 4am (🥱)and captained the team arguing for Pay for Performance at The Great HR Debate, alongside incredible peers Mark Frein and Jessie Zwaan.

Opposite us: Kim Minnick, Kim Rohrer, and James Seechurn. Seasoned veterans in their own right.

300+ People leaders watching. We won 62-38 🎉

And while the debate itself was epic, it was the conversation following that proved just as insightful.

Both sides agreed on more than the audience anticipated.

Nobody defended traditional merit-based pay: annual ratings, subjective calibrations, a 3% bump dressed up as differentiation. That model is tired, and more companies have a broken setup than those who believe they get it right.

The real disagreement was what to do about it: fix the mechanism, or abandon it entirely?

Team "against" argued the mechanism can't be fixed. James Seechurn pointed out that billions have been spent on competency frameworks, nine-box grids, and calibration processes — and organisations still can't measure individual knowledge work with enough precision to justify their pay decisions.

Kim Minnick backed this up with this killer stat: only 2% of Fortune 500 CHROs believe their performance systems actually inspire performance.

Kim Rohrer cited decades of research (Glucksberg, Ariely) showing cash incentives tied to creative problem-solving consistently make output worse. When pay rides on a performance conversation, people stop listening to feedback and start managing their face.

Team "for" (my team) didn't dispute the implementation failures.

But Jessica Zwaan reframed the question: the motion isn't whether pay for performance works perfectly, it's whether it's essential. And the opposition kept conceding that it is. Kim Rohrer opened her rebuttal saying "performance matters, of course it does. Without it, there is no job." If that's true, it has to be reflected in pay.

Mark Frein took it further, stating that differentiation based on contribution isn't a compensation strategy, it's a fundamental feature of free markets.

The argument that stuck with me most (and I'm biased, because my team mate made it) was about the sorting effect. Even if Pay for Performance changes nothing about how your current team behaves, it still determines who walks through your door and who stays.

That compounds over time. And the alternative isn't harmony, but adverse selection.

After the formal debate, someone asked the opposition directly: so what's the alternative?

James argued for flatter structures where everyone in the same role earns the same, with increases tied to company performance rather than individual ratings. His sharpest point was about promotions — when pay bands are stretched wide, promotions become purely economic events.

People chase management roles for the money, not because they want to manage. Then they perpetuate the exact problems everyone's complaining about. (I've seen this. More than once. It's a real design flaw and one I don't have a clean answer for)

Kim Minnick pushed back on the sorting effect directly: check your retention data. High performers in Pay for Performance models aren't being retained at higher rates — they're burning out at the same clip as everyone else. That landed. It's easy to dismiss in theory and much harder when you've watched it happen inside a company you're advising.

Mark conceded he could have argued either side — then pointed out flat structures are hard to sustain when competitors differentiate. James countered with Google's 20% time producing Maps, Ads, and Gmail. Mark's response: I can't imagine Google HR would say they don't Pay for Performance.

Neither side won that exchange. And that's kind of the point.

If you're building comp practices at a startup, the debate is interesting but the design decisions are what matter. Here's where I'd focus.

If your entire system rests on a manager's subjective assessment once a year, you're working with the most fragile version of Pay for Performance.

Broaden the definition to team outcomes, business milestones, equity tied to company performance, progression based on demonstrated capability.

At a startup, this might mean things like your STI being anchored to company revenue targets rather than individual goals. The broader the definition, the more defensible the system in a modern knowledge worker environment.

Performance feedback in one room, comp decisions in another, with genuine space between them. Both sides of this debate had people who've built this and seen it work.

Practically, this means your mid-year review cycle focuses purely on growth, skill gaps, and career trajectory. Your comp review happens a month later using market data, role, level, and performance as one input among several. This is one mechanism for giving each conversation the headspace it deserves.

If people are chasing titles primarily for the pay bump, your bands are creating problems. Ask whether your last five promotions reflected what the business needed and what those people were ready for — or had they just hit a ceiling in their current band and promotion was the only way to give them a meaningful increase.

If it's the latter, your structure needs work.

The opposition's strongest argument is that most organisations can't measure individual performance precisely enough to justify the pay decisions hanging off it. If that's true in your company — and in most startups it probably is — own it.

Use team-based or company-based mechanisms where individual measurement falls short. Design around reality, not aspiration.

What was clear from this debate is that Pay for Performance isn't a yes-or-no question, but a design problem. And performance differences exist in every organisation whether you pay for them or not — the only choice is whether you make them visible enough to actually do something about.

If you enjoyed this post or know someone who may find it useful, please share it with them and encourage them to subscribe.

Missed the session itself? Watch it here 👇

A roundup of the most interesting stuff from the week:

When you’re ready, here’s three ways I can help you:

1. Tools & resources
Resources and tools that give you what you need to build your own startup compensation practices.

2. Comp consulting
I run FNDN, a global comp consultancy that builds compensation practices that are clear, fair and competitive for startups.

3. Startup People Summit
I run the Startup People Summit, a one day annual event focused on creating the playbook for startup people practices. Grab recordings from past events, or subscribe to the newsletter to join the next event.