There are two basic schemes for compensation - goal-based and time-based.
The former one is known to humanity for ages, since the beginnings of commodity exchange. We get something and give something else in exchange. In software development, the well-known (and, surprisingly, much-hated) example would be fixed-price projects. You get paid for what you deliver, no matter how much is it going to cost you.
The latter one became very popular during the industrial revolution when someone needed to spend a given amount of time on the production line to be able to output a given amount of artefacts. Of course, it was possible to measure the effects and give compensation based on the effects, but it was very often used in other ways, often as a tool of oppression. If you won't make enough of X, you won't get paid or will be punished in some other way.
As a software consultant I'm being paid for the hours I spend working. This is a double-edged sword. From one side, it allows me to get money for the actual time I spend working, or at least it seems so. From the other side, it gives me a pressure to work (at least) a given number of hours, whether it makes sense or not. That's the time I need to spend most often staring at the screen, no matter if it actually helps to achieve the desired result or not. "That's what they pay for", one may think.
The problem is that not all work that needs to be done is actually being done while sitting at the desk, or even while being in the office. And the time being "present" doesn't really equal time spent on work. There is a lot of work being done outside of that time and lots of mental energy is being used to solve the issues, even when one's not in the office nor in front of their computer or smartphone. And it's very often the most valuable work, as it's the result of much deeper thinking that one is able to forcibly attempt.
Who's actually working more? A person leaving work early and then sitting in their car in the traffic jam, thinking about possible solutions for the problem they've faced today at work? Or a person that sits long hours in the office scrolling through the facebook wall? In any creative trade, there is a time spent on producing the actual output and a time spent on figuring out what should be that output. Of course, there are things that require one's presence in given place at given time. There are also tasks that are mechanical and require very little thinking. If it's all that one does then it's OK - they get paid for the time spent on doing just that. But if one's work requires any kind of creativity and time spent not directly on producing artefacts, it should be counted as the work hours as well. No matter what else are they doing in a meanwhile.
As there are no ways to effectively measure the time one spends on the creative work-related tasks, we should stop trying to measure it at all. You cannot measure person's attitude, you cannot count one's thoughts, there aren't even any reliable ways to measure the task progress. The continuous urge to find the way to do it is having a negative impact on everyone involved.
When building any kind of relationship, the trust is one of the key factors required for success. Unfortunately, when money is on the table, the trust is being put away in favour of control. The relationship becomes the dictatorship. And you cannot build a sustainable business from tyranny. Instead of focusing on control, put your attention on providing all the inputs others may need to effectively solve the problem they're ought to solve. Don't count the hours, examine the attitude and the output instead. Let people decide how much time is actually needed to solve the problem, and you'll get the best possible output.
Build your business around the trust: have a good faith in people's intentions from one side, and show that you're trustworthy from the other. Being paid for every hour made me value time even more - not only mine but also other's. And the value is not only in money - it is in all other things that one may be doing at the same time. Let people do what they think is the most important at any given moment and you'll get their best.
Whenever you'll enforce the rules, there will be an urge to break them. Trust is much stronger obligation than control. Value people's time and they will value yours. The value of one's creative work is not in the number of hours worked but in the quality of that time. Let's finish with the industrial revolution approach in the creative fields. Let's stop the office hours tyranny.
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