So you arrive for a job, and you are told, "this is how we compensate you." Here are all the pieces, and how, in theory, they work.
Each enterprise has a position based on their industry, market share, profitability, etc...that amounts to "we can give you x." However, instead of allowing for choice, it is a mostly or entirely prescribed model.
This is a HUGE missed opportunity for personal relevance, and by way of, engagement. I would argue it would be much more attractive, after negotiating the total value of "x", to have a conversation about what it could look like.
For all the compensation models, I think there are basically three variables.
- Money: cash vs. "cash in kind"
- Time: interval or immediate
- Contigency: given or "given if"
Enterprises can articulate their constraints. E.g., a certain percentage of "x" has to be contigent on whatever (individual, group, department, org performance for example) or, a certain percentage has to be interval (e.g., weekly monthly) vs immediate (e.g., lumpsum). These constraints would have to be appropriately limited, or again, it defeats the purpose.
However, the rest can be designed with the employee. What do they prefer? What balance of cash and benefits?
Better, imagine if it could be shifted on an annual or bi-annual basis. This means employees are compensated in the way most personally meaningful to them, and companies are still controlling their compensation costs (perhaps they might even save money in some cases).
I think moving from "has to be" to "could be", from "closed" to "collaborative", is the appropriate direction for many topics, and compensation is no exception.
Whether or not your organization is waging the war for talent, employee engagement matters and most are struggling with it. Most organizations are not leveraging all the means available to them to help address the engagement deficit, and this includes compensation. For the employees outside of the inner circle, compensation is too often overlooked as “one size fits all” and ends up being uninspiring for everyone.
Convert compensation into a powerful, simple means of facilitating engagement. Get more out of the same sum. Instead of telling employees what they have, give them as much flexibility and control as possible in allocating their total compensation on an annual basis
Let employees decide how much salary and how much (and what kinds of) benefit they wish to receive.
To help manage the administration of such a program, we would suggest either
- Having one set of flexible options for all employees
- Having tiers of different sets of flexible options for different levels or groups of levels of employees
The practice sends a simple message – personal choice is important, empowering, and engaging. We value you as an employee and want to help you achieve what matters to you.
Employees get can be excited about an up-until-now unexperienced level of choice regarding their compensation. They feel the “wow” factor, and this helps them to feel engaged. Consequently, it helps to contribute to their discretionary effort and likelihood of sticking around.
Beyond the individual level outcomes associated with engagement, the employee is likely to tell friends and family about the practice – helping to communicate strong positive signals about the brand. It may even help generate referrals.
The first challenge is mindset – overcoming “the now.”
There will be many excuses: “this isn’t a good time”, “we have other priorities”, “our compensation system isn’t broken, why fix it?”, “who else has done this before?”, “if it wasn’t made here, we don’t want it”, “we’re different...” and so on.
It may require a significant amount of vision, courage, and persuasion from key senior leaders to help shift the gears of tradition to a more modern setting.
IF this is possible (a big if, but probably possible for some), the second challenge is the administration of benefits:
· It simply isn’t possible for an organization to manage as many total reward packages are there are employees.
· Transitioning from one system to this system will take some time and require effective communications and change management to help employees experience the “what’s in it for me” (i.e., control, choice, etc.)
The third challenge, probably for senior leaders in particular, will be deferring judgment. With some kinds of change there is either a “worse before better” period, while everyone is adjusting to how things work. It’s important to provide enough time, in this case, perhaps one year to let things “settle in.” This doesn’t necessarily mean doing nothing, but it means managing the change effectively and not being overly reactive to negative commentary, especially at the beginning.
The fourth challenge is fit. In theory anyways, you want the implicit or explicit message of each of your organizational practices to send the same (positive!) message – whatever that message is. That is, the parts of the ecosystem should all be mutually reinforcing, and consistent.
If a company which was backwards in most respects and experiencing engagement problems adopted a practice like this, employees would probably appreciate the change in compensation “rules”, but the organization may not be in a position to realize any significant positive change in engagement, depending on the state of their other practices.
In other words, if employees are “dying a death of a thousand cuts” one bandage – even if it’s a really nice one – isn’t enough.
To test a hack like this, you could probably run a pilot experiment with a small segment of the population. You could take two groups (or more, but at least two) with approximately the same engagement scores, approximately the same demographic profile, and approximately the same strengths and challenges and conduct an experiment.
In one group (or some groups), you change the compensation system to the model we suggest. You give employees as much flexibility as feasible. In the other group(s) you leave things as is.
Over the course of a year, you could periodically measure direct and indirect outcomes. Direct outcomes could target how people feel about their compensation and the new system. Indirect outcomes could target how people feel about their job, the organization, their willingness to leave, their willingness to ‘go the extra mile’, and so on.
Departments could volunteer or be selected. In either case, it would likely require multiple levels of approval.
A smaller version of the same experiment, with fewer levels of approval would probably need to take place with the total rewards or compensation departments / areas.
An even smaller version of the same experiment, would be to conduct a “thought experiment” where you expose focus groups of employees to the concept and gather their reactions and projections about how implementing this kind of practice.
If focus groups were not possible, you could even solicit feedback informally by connecting and networking with colleagues at the same or different organizations to gather a sense of the general reaction to this kind of practice.