“I, (name of employer), hereby agree to pay this new employee for being non-productive for a period of up to 120 days.”

September 25th, 2013
Written by: Dana Papke

Part 3 in a Series on the Onboarding Gap: Reducing “Non-Productive Compensation,” Identifying Bad Hires Sooner and Protecting Your Investment

OK, I admit I’ve never actually seen an offer letter or employment contract that started out with an agreement to pay a new hire to be non-productive, but that’s essentially what organizations are doing.

We know intuitively that, unless the new hire is some sort of once in a lifetime “super hero” or “rock star,” she will take time to get up to speed while you are paying her full salary and benefits. We call what happens during this initial period Non-Productive Compensation.

Non-Productive Compensation, the gap between a new hire’s state of initial productivity and where he/she will be when fully meeting the expectations of the job, is a cost–and, as such, it can be quantified.

Two Examples of Non-Productive Compensation

Figure 1: Examples of Non-Productive Compensation in Two Employee Scenarios

Figure 1 shows Non-Productive Compensation scenarios for two sample employees with varying productivity paths during the initial 90 day Onboarding Evaluation Period. After 90 days, both employees are about equally productive. “Isaac Ideal” (left) shows rapid and smooth productivity increases over time (green line), rapidly reducing Non-Productive Compensation (blue-shaded area). But “Larry Late-Bloomer is slower to become productive (red line), so his Non-Productive Compensation (blue-shaded area) is significantly larger than Isaac’s.

Obviously, the faster an employee becomes productive, and ultimately is fully productive, the less Non-Productive Compensation cost the employer must absorb.

An Example of How Non-Productive Compensation is Calculated

Figure 2: Example of Calculating Non-Productive Compensation

  • Your new hire has an annual salary of $120,000 and a 90 Day Onboarding Evaluation Period.
  • Productivity is measured (we’ll talk about how in a future blog post) at 15%, 30% and 60% in months 1, 2 and 3 respectively.
  • Multiplying the monthly productivity rates by the monthly salary translates the productivity into dollars.
  • Subtracting the monthly productivity in dollars (c) from the salary (a) yields the Non-Productive Compensation, which for just one employee’s first 90 days, totals nearly $20,000.

Multiply $20,000 by 5, 10 or 20 new hires, promotions or transfers, and pretty soon you’re talking about real money.

So how can employers reduce Non-Productive Compensation or, in more positively worded terms, increase the speed to full productivity of a new hire, transfer or promotion? The solution is a more data-driven approach to Onboarding. We’ll explore that in an upcoming blog post.

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