When and Why Employees Should (Not) Be Paid in Advance
Actually, don’t.
That will never work. It won’t work with dogs, cats, lions, horses, porpoises, mice, bears or any other animal domestic, wild or in a circus or lab—except for one: humans, who will not only understand and happily accept a reward in advance, including payment in advance, but actually also then proceed to earn it.
Not Even Dolphins
For some strange reason, it seems we are the only creatures on Earth that can be rewarded or paid in advance. Although a captive dolphin was found to have exploited a reward for picking up rubbish in its tank by hiding a sheet of paper and plucking off small segments when keepers with fish rewards were nearby, I am aware of no evidence that they, porpoises or whales can be rewarded in advance.
To put it differently, we appear to be the only animal that can be bribed (which must not be confused with lured. More on these differences and why they exist, below).
All the rest will treat the reward or bribe in advance as a windfall—like a juicy apple or ripe bird’s egg unexpectedly dislodged from a tree by a breeze that is owed nothing in return. Are these windfalls incentives to perform some task? Yes, if eating is the task. Otherwise, cast in human terms, the dog, mouse, etc., will simply regard the reward as welfare, fantastic luck or some other substitute for doing anything resembling work, apart from devouring whatever has dropped into its clutches.
Given such a huge difference between Homo sapiens and all other creatures, it seems reasonable to expect that explaining the difference will go a long way toward capitalizing on it. Once it is understood why the difference exists and how it is sustained, insightfully and wisely applying it to the management of human performance—especially job performance—should be much easier, if not altogether easy.
Indeed, it may be argued that not only will such an understanding facilitate advance reward schemes, but also that it is essential to knowing when, why and how to implement them.
Bribe vs. Bait
As an initial insight, more closely consider the difference between bribing and luring, mentioned above. Both are forms of advance incentives: A bribe is, as an incentive, a reward in advance for performance of a subsequent task.
In contrast, a lure, a.k.a. “bait”, is an incentive dangled to motivate interest and approach, often to the immediate detriment of whatever is being lured, which, in general, is not the case with a bribe or advance payment. However, both can be used with great effectiveness in hiring and other recruiting, with luring generally preceding bribing, e.g., sting operations involving entrapment.
One of the main reasons to distinguish advance payment/reward from lure/bait is that recruitment or any other endeavor based on “bait-and-switch” will backfire big-time if the victim perceives the bait as an advance reward.
In such cases, the bait taken and then withdrawn will be perceived as “advance reward-and-switch”–i.e., as reward denied after being offered(e.g., for entering a car dealership that no longer has the bargain car, or filling out a job application when promised a prize really given only to those actually hired).
Bait-and-switch is most likely to work when the bait serves, from the target’s viewpoint, as an acceptable segue to the more attractive upsell reward. Conceptually, that means the bait is actually a stimulus and a trigger that prompts behavior leading to the costlier reward, rather than a reward.
Whether bait-and-switch is deliberately or unintentionally confused with advance reward-and-switch in the hiring process, it is a risky when selling or recruiting anything or anyone.
Signing Bonus as Bribe-and-Bait Hybrid
On the other hand, a signing bonus offered as an incentive to a candidate can be interpreted both as explicit bait and as a tacit advance reward, because it can be seen as a lure to snag the talent and also a reward for anticipated performance.
In such a scenario, the bonus is a hybrid lure and advance payment. It would be highly unusual for either party to the contract to regard the signing bonus purely as a lure, without any implications or expectations regarding subsequent performance.
Hence, it is probably a smart idea to reinforce the hybrid nature of the signing bonus with hints and affirmations of the great achievements to follow—that is, to make the signing bonus look as much like an advance payment as possible, rather than like bait.
Advance Payment Dynamics and Guidelines
Specifically addressing the question of when, whether and how to offer or provide advance payment, the following guidelines should be of some use:
—Obviously, payment in advance is to be recommended when the employee is both reliable and momentarily strapped for cash. When the employee is unproven with respect to reliability, e.g., a new hire with just average or mixed references and job longevity, payment in advance becomes riskier.
—When the employee or workman has to make sizable and otherwise irrecoverable expenditures of material resources to do the job, e.g., a tailor making a suit or any goods provider who will be stuck with inventory that cannot be sold if not paid per the agreement, the risk of poor performance you assume in paying in advance must be weighed against the risk of non-payment the provider assumes.
Since your cash loss will be identical to that of the provider/employee in the event of breach of the agreement, the only way to decide which of you needs payment protection in the form of pre- vs post-payment is to consider the probability of such a breach and of legal remedies.
This conclusion is a direct consequence of the mathematical concept of expected gain as it relates to decision making and gambling, since expected payoff is a function of only two variables: the values of the payoff outcomes and their probabilities.
For example, if you win $5 if a coin comes up heads on a fair toss and lose $5 otherwise, your expected gain over a series of tosses will be, on average $0 (given a probability of 0.5 for getting a heads on any toss).
However, there can be other variables as considerations, such as compassion, good will and pride, comparative total assets, and risk tolerances and aversion that can impact the decision as to whether to offer or insist upon payment in advance.
A truly comprehensive cost-benefit analysis of the pros and cons of advance payment would have to assign utilities and probabilities to every factor like these.
Why Only Humans?
As for why we humans appear to be the only creatures capable of understanding, offering and accepting advance payment and how the reasons for this can guide our payment policies, I offer the following personal speculations:
—Only we grasp the “law of commutativity”. When the order in which some operations or steps are performed does not change the “outcome”—i.e., the results are “equivalent”, the operation is said to be “commutative”. In some mathematical, physical and logical operations, such as multiplication, addition, creating “and” and “or” statements or mixing ingredients in a bowl, the order in which the operation is performed makes no difference to the result.
For example, 3 x 7=7×3, x+y=y+x, P&Q is equivalent to Q&P, and putting flour, milk and eggs in a bowl in that order is equivalent (in terms of the resulting batter) to mixing in eggs, milk and flour in that order.
On the other hand, when it comes to division, subtraction, “if P, then Q” statements or putting on your shoes and socks, reversing the order completely changes the result: 10/2 ≠2/10, 9-4 ≠4-9, “If you have a job, you have an income” is not equivalent to “If you have an income, you have a job” (e.g., when you are living on earned interest or liquidated stocks), and putting on your socks and shoes in that order is not equivalent (in terms of feasibility or comfort) to the normal reverse process.
The sequence “perform, get paid” can be interpreted as commutative under the operation of “ordering in time”, so that it doesn’t matter which comes first—the payment or the performance.
Either way, the completion of both sides of the economic transaction is achieved. Because of our apparently unique instinctive and formal grasp of commutativity, we know this is true and can utilize it in our economic interactions.
One implication of this that has practical consequences is that resistance to or insistence upon advance payment reflects doubt about the commutativity of this process.
That may be because of perceived risk asymmetries of the sort discussed above: The employer believes the probability or costs of the employee’s non-performance after advance payment are much higher than the probability or costs of defaulting on paying the employee after the work is done, and so resists.
The practical response in such a situation is to address and change the probability and/or cost estimates of the party who needs convincing, e.g., through clear evidence of reliability or robust assurances.
When those probability and/or cost estimates of the risk of being stiffed cannot be changed (because of resistance), advance payment will be highly problematic and probably best given up, in the absence of leverage to force the arrangement.
—Only we understand the difference between “permutations” and “combinations”. If you are holding three aces in poker, changing the order in which you hold the cards in your hand does not change the fact that you are holding three aces. That’s because you are holding a “combination” of cards, i.e., a set, that defines what “three of a kind” is.
But if the numbers in your lottery ticket perfectly match those in the winning ticket, except for their sequence, you lose, because the winning ticket is an ordered sequence of numbers, i.e., a “permutation”, which means the order of the numbers matters.
What this means is that when employer and employee agree to payment in advance, they see the steps as a combination. When they do not agree to that arrangement, at least one of them sees the steps as a permutation.
Your dog, in being unable to grasp the permutation “(reward, roll over)” or the equivalence of the combinations “{reward, roll over}” and “{roll over, reward}” (where the difference between permutations and combinations is symbolized by parentheses vs. brackets, respectively) just won’t get it and “agree” to the payment in advance format.
Unlike your dog, your employee or employer can be reasoned with or otherwise persuaded to see the steps of advance payment as equivalent to the combination of performance and post-payment.
So, given this analysis, what is the best way to ask for advance payment?
You could try this: “Because payment and performance represent a combination rather than a permutation and because the sequence is logically and financially commutative given comparable risks, I’d like to ask….”
But prepared to see your employer roll on the floor laughing…
…in advance of any payment.