Could the business world be taking the pay-for-performance idea too far?

Several points I heard at conferences last week raised that question for me.

For several years now, pay for performance has been a major push at organizations in America. The idea is to hold on to and inspire the top-performing, “A-player” employees while sending a clear signal to lower-achieving workers that they aren’t up to snuff.

Software vendors have embraced the trend, offering products that make it easy to track progress toward goals, rank employee performance and assign pay raises based on those figures.

But could the obsession with results be misguided? And could the drive to differentiate pay backfire?

Consultant Stephen Shapiro prompted the first of those questions during a keynote speech he made at the annual conference of the International Association for Human Resources Information Management professional group. Addressing a room of several hundred HR techies at a Walt Disney World hotel in Orlando, Florida, Shapiro cited a study of auto racing pit crew members. He said that after numerous efforts to improve the speed of a pit stop, the crew hit a plateau. They could get no faster with the tire changes and refueling.

But when told not to worry about speed, and to focus instead on doing their various jobs more smoothly, they managed to go faster.

Could helping workers get in the flow be more effective than focusing on particular results? Another Shapiro anecdote bolstered the idea. He recounted the tale of a retailer where all store employees except for one were asked to maximize sales for a particular period. The last employee was told to concentrate on serving customers well. That employee sold more than all the others.

Shapiro, formerly with advisory firm Accenture, also called attention to the way people benefit from working with colleagues of different personality types. Thus, someone who loves to dream up ideas needs a great “doer” as a partner. Shapiro said he used to hire people in complementary pairs to maximize the strength of his team.

At the annual customer conference of HR software firm SuccessFactors, Stanford University professor Robert Sutton reinforced the notion that focusing on individual stars can dim an organization’s overall performance. Sutton, author of the popular book The No Asshole Rule, said research has indicated that baseball teams with greater wage disparity experience a reduction in team performance. Sutton also pointed to evidence that pay disparity within the top management ranks can hurt an organization’s performance.

Yes, it makes sense to be clear about desired results. And yes, it makes sense to call out and reward excellent individual performance. But we seem to have taken these principles to an extreme.

Perhaps the pendulum is already swinging back. An executive roundtable at the SuccessFactors conference in San Francisco suggested forced ranking—a frequent ingredient in the pay-for-performance recipe—is losing favor. Diana De Walt, senior vice president of human resources at biotechnology firm Gen-Probe, said her company has dispensed with the mandatory distribution of performance ratings. And Godfrey Sullivan, former CEO of software firm Hyperion Solutions, said he strongly disagreed with the practice.

To focus so much on identifying top performers, he suggested, is to miss the firm’s forest for a few trees. “Life is made up of ‘B players’ who are trying really hard to do their jobs, and they need to be grown and developed and turned into ‘B+ players,’ ” Sullivan said. “They may never make the top 10 percent, but they are the lifeblood of a lot of company operations.”

Earlier this month, government officials meeting in Russia hashed out something dubbed the “Moscow Formula.”

It sounds, at first glance, like a name for the plan to keep Vladimir Putin powerful after his term limit as Russian president is reached.

But no. The Moscow Formula is a catchphrase for an idea of interest both to governments and businesses around the globe. The formula, discussed at the first World Social Security Forum, is that a broader concept of social security has to be brought to the public agenda. Rather than merely compensate against loss, the new face of social security aims to invest in people as it tackles the challenges of aging populations, health care coverage and deepening inequality.

The forum was organized by the International Social Security Association, a group made up of nearly 370 government agencies. But officials at the gathering showed their familiarity with business thinking and lingo, including the term “human capital.” Social security officials in the past may have focused on protecting the old and sick against poverty, but today they see themselves as vital players in the quest to create societies that are not only just but prosperous.

“Global economic growth is only sustainable if it is accompanied by social development,” Hans-Horst Konkolewsky, secretary-general of the International Social Security Association, said in a speech.

Michael Cichon, director of the Social Security Department at the International Labour Organization, echoed that point in a recent interview. “Above all, social security contributes to social cohesion, which is the prerequisite for any long-term investment,” said Cichon, whose organization is an agency of the United Nations. “Nobody invests in the long run in a socially unstable, insecure society.”

Cichon cited a study in Mexico finding that people who have been benefiting from youth and family health programs during their adolescent years showed labor productivity (indicated by the level of earnings) about 20 percent higher over a lifetime compared with those who have not benefited.

The ILO is pushing the concept of a “social security floor” that involves basic income security and universal access to health care. The agency is part of a growing debate about what sorts of safety nets are needed in today’s global economy, where workers often face greater economic risks and companies are retreating from traditional benefit plans.

In the United States, businesses for the most part have remained quiet on the economic insecurity question. But it may be in companies’ best interests to get out in front of the debate—both to stave off policies they abhor and to help create smart ones that foster growth. Business leaders, in other words, could be a key ingredient in the “Moscow Formula.”

A recent report about worker productivity around the globe puts the United States at or near the top. But for U.S. employees themselves, the achievement is somewhat empty.

In early September, the International Labour Organization said the United States led all nations with $63,885 of “value added” per person employed in 2006. Ireland was a distant second at $55,986, followed by Luxembourg ($55,641), Belgium ($ 55,235) and France ($ 54,609).

The ILO, a United Nations agency, said Norway ranked first in terms of value added per hour worked, at $37.99. But the United States was second at $35.63, followed by France at $35.08.

Productivity has a lot to do with the tools businesses provide workers, including computers and related technology. But it also reflects workers’ skills, knowledge and effort. Unfortunately for average U.S. workers, it seems their contributions to world-class productivity haven’t gone rewarded with world-class compensation of late. Real average weekly earnings of U.S. production workers rose just 0.7 percent between August 2002 and August 2007, despite an expanding economy.

Perhaps the miniscule movement in real earnings helps explain another U.S. productivity statistic—one that’s less glowing. U.S. manufacturing productivity grew 2.4 percent last year, a rise that was exceeded by several nations, according to the U.S. Labor Department. In Taiwan, Germany and Sweden, labor productivity grew by over 6 percent, and in Korea by nearly 11 percent.

Could that less-than-stellar productivity growth in the United States be a sign that American workers are fed up with seeing so few fruits of their labor?

Employers in China are facing challenges on the compensation front, according to two new studies. Both dovetail with reporting I did in China earlier this year.

On Tuesday, March 13, consulting firm Watson Wyatt said Chinese workers are far less satisfied with their pay and benefit packages than workers in the rest of Asia Pacific and in the United States. According to Watson Wyatt’s study of 180 companies and 60,000 employees in China, only 28 percent of mainland Chinese workers rate their compensation and benefits favorably, compared with 38 percent in Asia Pacific as a whole and 47 percent in the United States.

Faulty communication is part of the problem, according to Watson Wyatt. “[W]hile Chinese workers cite communication as a main driver of job satisfaction, many don’t know how performance is measured or receive a consistent message from their company on the link between high performance and an individual’s pay,” the report said.

Watson Wyatt’s findings are consistent with what I learned about HR departments in China. Although progress has been made during the past decade, the HR field in China is in some respects far from Western standards. That’s partly a function of history. Traditional Chinese enterprises have not had much in the way of market forces to push them to develop sophisticated compensation or performance management skills.

On Monday, March 12, consulting firm Hay Group announced forecasts of real base salary increases for administrative, professional and senior management in 2007 for 50 countries worldwide, based on employers’ projections once inflation has been considered. Hay Group said China tops the table for each of the three job categories, with a predicted a 7.9 percent increase for administrative workers, 7.8 percent for professionals and 8.9 percent for senior management.

By comparison, each of those types of workers in the United States will get real base salary increases of 1.4 percent, according to the report.

“The wealth created by rapid, focused economic development is resulting in a pay boom for Chinese and Indian workers, who will enjoy some of the largest real pay increases worldwide in 2007,” Hern Yin Goh, director of Hay Group Reward Information Services in Shanghai, said in a statement.

Hay Group’s research is in keeping with the steep pay gains for leaders I heard about in China. Helen Tantau, senior partner with executive search firm Korn/Ferry International in Shanghai, told me local Chinese leaders with good track records can expect salary increases in the 10 percent to 20 percent range.

At the root of big salary gains for execs in China is a dearth of managers there prepared to do business in an international setting, combined with strong demand for such expertise amid the country’s fast economic growth.

Even as executive pay goes up in China, Chinese workers’ satisfaction with compensation is falling, according to the Watson Wyatt report. It says that in 2005-06, 21 percent of Chinese workers gave their total compensation package (pay, bonus and incentives) a favorable rating, compared with 27 percent in 2003-04.