Billing for Time

One of the odd notions of our society is the idea that time=money.

It’s an odd notion because it incentivizes the person getting paid to be present as opposed to being productive. It also might be the best system we have available.

Paying for output is the most fair and most ideal way to get paid. If your business is in a competition with another to sell a product with unlimited demand than incentivizing output gives your business a greater competitive advantage. If you’re merely paying for time then you’ll need to layer other incentives in order to encourage the workforce to generate more output. This is where we often see the five types of power come into play. Leaders will often develop a system that involves some combination of reward, legitimate, expert, coercive, or referent power–instead of just adjusting the payment model to pay people for their direct contributions to business value.

What is a direct contribution to business value? Not every industry knows what business value is.

Governments in particular is keen on paying it’s employees for their time. In part because payment for time appears to be the most fair. If the folks at the DMV were paid for their output they would probably look for ways to improve the speed of their processes and work with lawmakers to reduce unnecessary steps.

But to be fair, what happens when you have a government service that is under utilized or shouldn’t exist? Paying someone for output in an environment that shouldn’t have an output makes the position hard to fill and creates the impression that the system is unfair.

Entrepreneurs are in a unique situation in our current society. They get paid for the output of the system they create. They are incentivized to improve that system’s output. They may pay their workers using a time-based payment model. One reason for doing this in an entrepreneurial setting is to reduce the ability of the worker to know the profit margin of each product. If the worker learns the margin rate it can often build feelings of resentment that can lead to confrontation between management and employees in the future.

This also makes it hard to pay the ever valuable layer of local management. If they’re not directly touching the product as it gets built how would they get paid?

Daniel Pink’s book Drive talks about how people are only motivated by output when the task is mechanical.

Paying for time doesn’t appear to be the best way to incentivize output in a system, but it is a common method used across cultures in the world today, because appearances can be deceiving. Time may not be perfect, but it’s the best system we can agree upon.