A Possible Direction for 21st Century Rewards

Editor's Note:  Today's post comes to us courtesy of guest contributor Tony Bergmann-Porter.

I don’t think there’s anyone left to argue that the Pay Transparency train isn’t leaving the station, so we need to start thinking and talking about what this will mean for those of us who have to live with the consequences.

We know that pay transparency inevitably leads to flattening and compression effects (see here for example), and also that these effects may not be altogether a Bad Thing (see here for example).

It’s also clear that merit budgets will be small and flat for the foreseeable future, to the point that it will remain extraordinarily difficult to provide meaningful performance-differentiated pay increases – assuming that it will even be culturally or legally acceptable to do so in the first place. 

However, none of this will obviate the need for the attraction, motivation and retention of the talent necessary to compete.  And the incentives to get performance management right – which are already considerable in a globalized/first mover advantage/tournament economy - are going to be even greater if base pay ceases to be one of the levers to pull.  

So let me suggest the outlines of a 21^st century reward model  that I expect to take shape in response to these conditions  (and obviously, I’m talking about primary labor market white-collar jobs with mid – large size organizations):

1)      It will be extremely difficult to get in. Selection processes will not merely be rigorous; companies will openly publicize and make a very big deal about their selectivity.  Just as it does now with elite colleges, the selection/rejection ratio will actually play a role in ranking organizations as great - and therefore very desirable - places to work. (Google does this already. )

2)      Performance appraisal will be continuous, 360 degree, and closely monitored by both machines and humans.  I foresee some form of data mining of calendars, project plans and other forms of electronic communication to identify those with whom you interact, with corresponding push requirements for performance feedback, both immediate, and at one or more future points in time.  Algorithms will identify current or impending deficiency, and perhaps even whether an intervention is likely to have positive results. Individuals who are not expected to be remediated will be, with varying degrees of kindness, removed from the team. 

3)      Obviously, there will continue to be a market against which pay can and will be benchmarked, and pay levels set, but base pay in private sector organizations will structurally resemble the Federal Government’s GS schedule. That is to say, there will be a transparent step-and-grade arrangement under which the base pay of all similarly-situated employees will be identical, with differences based solely on tenure. The steps will provide for modest maturity curves in the organization, but given the rate of technological change, I doubt there will be very many steps per grade below the upper 25% of grades. The only exceptions will be identical “hot skill” premiums for similarly-situated employees.

4)       Because base pay for the very highest performers will not differ from the base pay of their organizational peers, there will necessarily be other ways of recognizing and “compensating” top performers. I expect these to be organizationally and ethnoculturally –specific, and that they include access to/mentorship from senior management; fast-track promotion; restricted developmental opportunities (company-paid education, international assignments); the opportunity to serve on or lead high-visibility teams;  assignments to work on the next big next big thing; and so on. Participation in LTIP and equity plans may likewise be restricted.  Needless to say, all indivisible prizes will be scrupulously examined for demographic equity.

5)      Most variable pay will be team-based, and teams will determine the allocation of such pay to their members. In turn, that will typically result in equal distributions, whether proportional or per capita. I do not expect to see these kinds of changes in Sales Compensation plans.

6)      As soon as one of the big kahunas (GE, GIS, GOOG, GS) adopts this approach, you will see the same rush to follow suit that happened when MSFT dropped stock options in favor of restricted stock in the 1990s.

How does all this strike you – likely and reasonable, or far-fetched and preposterous? Have at it.

Tony Bergmann-Porter is the Principal and Owner of Yale Associates LLC, a compensation consulting and contracting entity. He has many years' professional experience in compensation and total rewards, and is the 2014 President-Elect of the Twin Cities Compensation Network, the leading WorldatWork Local Network partner. Tony holds a BBA and BA from the University of New Brunswick, and an MAHRIR from the Carlson School of Management. He also holds CCP, CSCP and SPHR certifications. He enjoys track days and autocrossing with his Corvette.

Image "Hand Holding Snow Globe " courtesy of janaan /FreeDigitalPhotos.net

Comments

[E. James (Jim) Brennan]

There have been enterprises with exactly those characteristics in the past and in the present. Not sure how prevalent that combination of methods are, or how frequently they are emulated, because such "different" and "unique" approaches tend to be resisted in many places. If it's NIH, new, foreign or nontraditional, some declare it can't be "best practice" unless it is modal (most frequently observed).

[Tony Bergmann-Porter]

Jim - good points and thanks for commenting. I know from bitter personal experience that the proponents of NIH can extract a very heavy price. Hence my point that one of the Big Boys will have to go first; if/when that happens, there's a mad rush to follow.

[Karen Kervick]

Interesting thoughts, Tony. There is a trend towards "equality" in pay which means less differentiation - even when there are valid reasons. And let's not forget, the impact of more regulations and compliance concerns.

But I don't think everything the Big Boys come up with can filter down to other mid-large companies. OR if they do, it ends up being so many years later that the Big Boys are already onto something else by then.

I read some of the Boston Globe's Best Places to Work survey results tonight. I wouldn't call any of these companies Big Boys. Perhaps true change in the rewards approach is happening with the little boys already. And maybe employees are really looking for something less tangible when their basic needs are being met.

http://www.bostonglobe.com/business/specials/top-places-to-work

[Jacque Vilet]

I'm not sure the "big boys" are the first to implement new things. In fact it seems to me it is the smaller companies and even start-ups that blaze the trail. Maybe it's because they are just more "nimble" and can move faster than the "big boys" who are larger and frankly (in my opinion) more bureaucratic.

[Tony Bergmann-Porter]

Karen & Jacque: Thanks for weighing in, and point well taken. If I'd had another 25 words available in the original post, I would have said that this type of innovation is unlikely to first emerge in one of the Big Boys, but rather that it will not be viewed as a best practice until it is adopted by one, at which point the rush to follow ensues...

[E. James (Jim) Brennan]

Agree with Tony, because I knew and counseled the CEO of one such innovator. His was a small/medium employee-owned manufacturer with EVERYTHING totally transparent. He negotiated a leave of absence (he reported to the entire work force) to write articles, give speeches and travel to Big Boys as a messianic evangelist advocating their proven successful approach. Long story short, everyone wanted his firm's financial performance results but all were terrified of the loss of personal power involved and universally refused to adopt the required methods. NIH won again.

[Trevor Norcross]

Hi Tony,
I think generalizing what happens in public governmental agencies to the privet sector may be overreaching. My perception of HR in the public sector is not a progressive one. I’m sure this is not always the case. Also, being forced to be transparent is different than an approach a company would take that was strategically choosing to do it.

If a company like Google chose to be transparent with their pay their approach and implementation would be very different and be done in a way that would not lead to flattening and compression.

When you look at pay and turnover are you more worried about lower in range paid and performing employees leaving because they feel underpaid or higher performing but pay flattened employees leaving? There is a risk of pay transparency leading to pay flattening and compression but it is not a forgone conclusion. In my opinion the companies that do it first will make sure they do it right and have strong performance management programs and culture. It’s the “me too” companies that will be at a greater risk.

In my opinion, pay transparency is another opportunity to elevate the pay strategy discussion to a higher level to make sure it is done right and imbedded into the fabric of how the company operates and I reject the idea that it must lead to the end of pay differentiation. Through this discussion a company may take an approach that flattens pay as a strategic differentiator and target a workforce that is mission based because of what the company does but I don’t believe pay transparency has to lead to one outcome.

Thanks for your contribution!

[Tony Bergmann-Porter]

Trevor, thanks for your input.

To be clear, I am not advocating for this approach, and I am emphatically not suggesting that the private sector should or can adopt the policies and practices of the public sector. What I am doing is donning my futurist hat and saying that this is where I see trends directing compensation programs.

Transparency may be a strategic choice at the moment, but I suspect it will ultimately be forced on us as either a best practice, a cultural norm, or a legal/regulatory requirement. When that happens, the known effect is flattening and compression, to the point that it becomes difficult or impossible to differentiate base pay. (And I have omitted from this the whole discussion about whether it makes any sense to annuitize into perpetuity someone's past performance in the form of base salary increases.)

None of these developments will obviate the need for performance management, or to find other ways of compensating/rewarding your highest-performing employees. I have speculated about what performance management might look like and what some of those rewards might be.