Does Value-Based Compensation Increase Productivity?

Within the model of value-based compensation, you are rewarded strictly for results. The amount of hours spent or the degree of effort is irrelevant; you are paid only for tangible, measurable value produced, regardless of the duration or difficulty of the work.

For those used to a predictable hourly wage, value-based compensation may sound risky. Work impediments like sudden sickness or family emergencies can show up later as missing money on your paycheck. Most feel that the employer should handle the ups and downs of the business and provide workers with a steadier form of payment.

But if your payment is stabilized with a steady hourly wage, you’ll miss out on the booms as well as the busts. You may be saved from a slow week, but you can also miss the payout of an amazingly productive week. Plus, while hourly pay may tempt you to work slowly, value-based compensation provides strong motivation to improve your skills and your efficiency.

Businesses would love to pay strictly for results. Workers would love immediate rewards for working harder, faster and more effectively. Value-based compensation seems like a win-win for both parties, yet it’s not the most commonly-used compensation model.

Clearly, value-based pay compels you to work harder and faster. But, do the benefits of value-based compensation outweigh the risks? Would it truly make you more productive and consequently earn you more money – or is money even the biggest driving factor?

Popular search terms for this article:

value based compensation, results based compensation, productivity based compensation

Peter is Vice President of Digital Marketing at an investment holdings company in Washington DC and Co-Founder at True North.


  1. Zé Ricardo on the 10th August

    Reading this blog post only made remember this video.

    Drive: The surprising truth about what motivates us

    • Bryan Thompson on the 11th August

      Ze: Have you read the book of the same name? “Drive: The Surprising Truth About What Motivates Us” by Daniel Pink. It talks a lot about this issue, and Pink has some interesting examples of companies who have had major success with Results-Based compensation.

      Another good resource on this is Timothy Ferriss’s “The 4-Hour Work Week.”

    • Mike Vardy on the 11th August


      One of our contributors recently did a review of The 4-Hour Work Week. It should be up on the site within the next week.

  2. Well nice argument. Both sides have their advantages and disadvantages.

    I think value-based compensation is clearly a good option.

  3. Nicolas DORIER on the 11th August

    Interesting video Zé Ricardo, but I don’t see value-based compensation as a reward.
    Value-based compensation, in my mind, is a huge boost to autonomy and purpose.
    Recently I’ve stopped being paid by people based on my time. (I’m an independant software developer)
    I did that not because I wanted bigger reward, but because it gives me more autonomy and satisfaction on my work.
    If you are personally engaged on the result of the product you are selling, it means you have your word to say about the direction that the product takes.

    Also, with value based compensation, in my mind, I’m not working anymore with customer : I’m working with partners.

    It’s a really important difference.

    Customer-Supplier means that
    -the customer wants to pay you the least amount of money for the best work you can do.
    -you want to make him pay the most amount money for the least amount of work you can do.

    When in you mind you are a partner, not a supplier or a customer, you stop thinking about how to share the pie, you start thinking about how to make the pie bigger. That is a great purpose.

  4. Carl Natale on the 11th August

    Daniel Pink has some great work on motivation and how important money is as a motivator (less than we think).

  5. Mario Andrade on the 22nd August

    Nice article Peter, meanwhile I believe you are being too optimistic on this post. It’s obvious, from the post, that you understand the risks of a value-based compensation.

    I’m a great apologist of shot / medium term compensations. If you work hard this week, you should be compensated in the end of the week or so.
    Unfortunately most companies see hard work as a long term commitment to stay in the company and don’t realize that will dis-motivate most of their workers.

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