An alternative approach to setting remuneration levels for employees, based strongly on employees own evaluation of what they are worth, and what they have done performance wise to earn any additional remuneration in a given review period.
Many current performance based remuneration or pay systems provide rewards that are not motivating or meaningful to employees.
There is also a view that management is not competent or trust worthy enough to set and measure targets or rewards.
"Traditional pay structures have seen employees rewarded for service and loyalty, receiving salary increases based on inflation or collective negotiation. Increases were often regarded as entitlements, with little or no link to performance”
Communication about remuneration and setting performance targets is a challenging and a source of significant dissatisfaction within many workplaces.
Employees are as a rule distrustful and resentful of hierarchy, and the lack of information, interaction and communication about the remuneration process and its outcomes, is a partial source of this distrust.
From academic literature it seems that effective remuneration setting and attempts to motivate employees with monetary incentives, is in practice difficult to get right, and there seems to be divided opinion if it is at all possible.
It can be concluded that monetary rewards are more a hygiene factor for employees, and if employees perceive their wages or salary level to be fair for the work they do, relative to what others do, they are satisfied, but not necessarily motivated by their remuneration package.
It is probably very easy to de motivate staff with by a remuneration package they perceive to be unfair, as people have self serving bias perception and often credit good outcomes to their own efforts, and others peoples's good performances due to favourable externalities. The converse of course also exists.
A person’s sense of equity is often self centered and most people cannot in my opinion, correctly judge the value and worth of others relatively to themselves.
Incentive pay appears to work in some instances particularly for employees who are motivated by money , however if the target or measurements are inaccurate, inappropriate or perceived to be inaccurate or biased, then incentive pay can easily de motivate employees, or lead to dysfunctional behaviours, like prioritising own goals ahead of team goals, or just giving up or not trying hard.
It seems the chances of getting remuneration wrong is much greater than getting it right. While over paying staff might improve the chances of not de motivating staff, this may still not work as the comparison group for equity judgments about what is fair pay, may still be fellow employees.
Additionally, organisations have a conflicting goal of trying to minimise costs to maximize returns, and it is difficult to justify paying staff well above market rates to stakeholders and other employees. Market labour and salary rates are also often perceived to be unfair and unreflective of skills and abilities, but for a business and in particular a business where salaries and wages are a high portion of costs, there seems no advantage or incentive to pay well above market rates, unless special circumstances dictate this.
With this in mind knowing that employee satisfaction with remuneration is an important factor in their motivation to perform their job, to and above expectations, my recommendation is to improve employee knowledge and trust in the remuneration practices employed in an organisation. This trust coming from active and open annual participation in the remuneration setting process and full disclose of relevant information,
This information could include an organisations’ financial performance, general salary/wage market levels for similar positions in other similar organisations, and salary and wage range levels for employees within the same organisation.
Accordingly taking the above views into account, below is a recommended process that may improve remuneration setting for employees, which may improve a feeling of equity and fairness in the process and outcomes and accordingly reduce possible de motivational aspects to remuneration setting, and at best improve motivation for work performance through monetary or non-monetary rewards.
1) Organisation to subscribe, participate and widely circulate Market surveys for specific occupational positions to
establish salary or wage ranges, the ranges incorporating variables such as organisation size, location, and
years of experience.
2) Regular self assessment by employees on where they should sit in the market range for their positions, including
self assessment on how they work with others in the organisation, what is their future
potential to their organisation, and what skills and experiences they have acquired since the last review.
The self assessment is to also recommend a new salary for the next review period and after discussion with the
employee’s direct supervisor or manager, a recommendation and justification is to be passed up the hierarchy
one or two levels for approval and moderation.
3) Written recommendations prepared by an employee for an one off bonus reward for individual work achieved over
last review period this is for achievements above and beyond normal tasks undertaken. Bonus reward to be
agreed and moderated by at least two higher levels of management. The bonus could be based on agreed target
or objectives prior to a review period ,or if that is too complicated and subjective, after the review period, based on
an employees written and justified request for additional reward above and beyond their normal salary.
This type of bonus may work best for employees whose individual performance contributes directly to reliably
measured desired organisational outcomes.
Employees could have their bonus target rewarded at three levels (threshold,target and stretch targets)
as all or nothing targets can be de motivating.
4) Work group bonus and/or organisation wide bonus schemes which could be based on agreed achievement of set
group /and organisational targets (threshold ,target snd stretch) and possibly be conditional on achievement of some
overall financial thresholds, in case the organisation falls behind budgeted financial performance.
5) Full and open disclosure to all staff of salary ranges, bonus payments, and organisation and work group
For this reward system to be successful a lot of time, effort and communication is needed to establish employee trust. Management must demonstrate openness and integrity and support employees in their self assessments of competency and performance.
Such a reward system will also take some time and resources to introduce and implement. Staff will need to given support to develop communication skills to justify the self assessed positions they take in relation to salaries and bonus payments. Supervisors will need to develop communication and negotiation skills to help employees accept compromises and understanding, if there expectations cannot be met.
Above all, staff will need to accept that market rates for occupational groups including the survey data available to them, is the reality for the positions they hold.
Salary bands or ranges for all organisational positions will need full disclosure and explanation. Privacy concerns could be alleviated by not disclosing individual salary levels, but only ranges applicable to each position.
A genuine "good faith" dispute process must exist and full explanations need to be provided to employees on request.
While this approach to establishing remuneration seems bureaucratic and requiring heavy management support and approvals, organisations need to be aware that remuneration expectations of employees is correlation to individual job performance, and remumeration need to be clearly understood and accepted by employees, to work without a feeling of injustice.
As not all staff are motivated by monetary benefits, perhaps organisations could offer individuals a combination of monetary and non monetary benefits like more annual leave, reduced or flexible hours, training opportunities, travel opportunities combining business travel with holidays and so forth.
Again, this would require agreement for each individual by management and be seen to be an equitable trade off by other employees in the organisation. Nevertheless, giving employees the opportunity to negotiate his remuneration and how it is paid, would appear to be empowering and hopefully motivating.
My opinion is that if employees have to prepare their own performance appraisal and salary and bonus recommendations, they will be more engaged in the process.Despite not always getting what employees want, they may be less defensive and fatalistic about resulting outcomes if they are given full and credible explanations for their remuneration outcomes.
Most people are quite realistic and modest about their skills and abilities and given good information about external market rates for various occupational groups and information on salary ranges within an organisation, employees will I suspect be realistic in their remunerations expectations.
A pilot of the new remuneration setting process could be tested for a part of an organisation where good trust already exists between managment and employees. If successful, learnings from the pilot programme could be widely shared and
considered before organisation wide remuneration processes are changed.
After initial consultation and pilot programmes are completed, employees and mangement feedback and suggestions for improvement in the remuneration setting process, needs to be taken into account and accomodated if practical.
Possibly the process need not be implemented for all levels of the orgnisation if an identifiable group is resistent or fearful. To help implementation, employees could be reassurred that the remuneration setting process could be reviewed regularly for a period, and modified or abandoned for a better alternative at each review point, if there is widespread consensus on a need for change. This may give assurance to all parties that if it doesnt work, changes can be accomodated.
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This concept has also been described in Ricardo Semler's book, Maverick. I really like the idea, and I'm wondering how many companies have implemented it, and what the results were.
One big hesitation for me is that the salary surveys available on websites seem to trend toward a far higher range than what we've generally seen the market to be. My guess is that it's caused by inflated self-reporting. How can we get consistently reliable data on salaries? What about people whose job descriptions don't match up with traditional categories?
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