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COMPENSATIONS AND CHANGE: A REQUIRED REVIEW
"Tell me what you are paying for and I’ll tell you where you’re heading to"
By: Mariano L. Bernardez, PhD

Flattening, reengineering, becoming boundaryless, team based and promoting self directed, cells organized, muscular and client focused organizations is part of a process at which all the top contenders are working hard, and working increasingly better. (Training Magazine, The Top Ten trends, July 1996)

But in spite of the vanishing power of the old days’ labor unions, only a few companies have taken steps toward modifying the traditional compensation systems.

And these old ways to manage compensation, or the mere "revamping" of the latest proven systems (coming from the realities of the 50’s) are not enough when the struggle for the high performers begins, as many managers and CEO’s are painfully realizing.

The design of compensations system has shift from been considered an internal " micro level" specialized task to be considered a key factor for remaining ahead in the competitive labor market of high performers on our times.

Being "fair" or "staying in the average" of compensations is no longer enough to attract or retain high performers: they are coming (or leaving) not for the money they can get now, but for a mix that includes working environment, expectations, company image and future project appeal.

That mix forms an equation that is increasingly being called the "attractiveness" of the company and is a key "barrier" that keeps high performers coming and staying in, by making costly enough to the competitors to desist to offer them money to leave.

The search for "attractiveness" is crucial to keep very sensitive and critical projects running without desertions, and to help construct the high performance new teams required to develop the huge untapped new businesses potential that is awakening in the new global and emerging markets (Hamel & Prahalad: Competing for the future,1994)

And a key ingredient of the "attractiveness" formula is the way you compensate people’s performance -not just the amount or the components, but the "equation" (that expresses the system) itself.

Paying more or giving more fringe benefits than rivals is no longer enough, but is becoming a "measurement by the absurd" of how much your company needs to pay just for not being "attractive" enough to the high performers it wants to get or keep, or putted in the other way, an excellent bottom line indicator of the value added by your HR policies to the companies assets.

And then, some cutting edge companies have began to transform their compensation systems

By using (with due respect) the metaphor of Creation, we could say how it started :

"In the first day, there was the traditional Hay systems, but soon even the Hay people (Flannery & Others: People, Performance and Pay, 1996) realized that the pace of change in job definitions made the traditional method clash against the new realities".

Based upon Hay or other methods, an entirely new challenge has to be met, rather than merely "fine tuning" the old "formulae".

This article is an attempt to show the Compensation’s Paradigm Shift that is required in order to address the new realities, and proposes some recommendations springing from field consulting experience:

OLD PARADIGMS NEW REALITIES REQUIREMENTS
Compensation systems are centered on individual jobs and task structures Compensation ought to be centered on teams and organizational performance in a flexible way that not only allows for but encourages the changing of roles and routines without negative reprisals
Compensations are influenced or even directed by bargaining procedures withlabor unions (at an industry or company) Compensation has to be linked effectively to performance that people can obtain and control as well as to value-added to the organization, external clients and society through different processes and techniques for adding value , reducing non-value added costs ( Flannery), developing new businesses through the intensive use of cross-functional, multi-level measurable-results oriented teams (self-directed, QC, Work Outs, etc.)
Pay per skills or knowledge Don’t confuse again "means" (knowdledge or skills, or PhD’s) with "ends" (performance, results): pay for relevant results, measurable performance (Kaufman)
Fixed "formulae" Measure the actual results and performance and look for tracing or including their impact in both bottom lines: business - Macro (Hope) and societal - Mega (Kaufman)

This a big picture draft drawing of the task to be done.

Talking about performance improvement, -or organizational change, or cultural change- without addressing these issues is condemning the entire transformation effort to the Big Changes cemetery (Bernardez, Management Review, June 1997) that every company (and employee) has.

We will proceed, following our experience, step by step, making some recommendations:

  1. Day One has to be done: if your compensation system, as an heritage of the roaring 80’s or other is a mess, you have to dive right into it with the best consultants and resources you can hire and get the real numbers in order so you can begin to…re-order it
  2. Gradually replace the classic bargaining culture: send some signs of good will (such as respecting people’s pocket income) at the same time you propose a new approach towards the new rules
  3. Establish new performance improvement programs: active experiences directed to adding value, replacing non-value added activities with good ones (3), and reducing hidden costs and developing new businesses by improving clients’ satisfaction. All this can be done through Work Outs (such as GE); or self directed work teams (such as GM) or Quality Circles (as the oriental companies do), or a combination of all of them.
  4. Launch new open communication lines between levels, crossing "boundaries": Make use all the electronic warfare ( EPSS, CBT , e-mail , -Gloria Gery: EPSS, 1994, Bernardez & Torres: Using CBT and EPSS for enhancing communications - ISPI’s 1997-); you have to establish a two-way communication systems that allows each employee to get the numbers on their performance (installing emulation effects that raises consistently performance levels), inform about team’s goals achievement and to share and disseminate the best practices for solving the common problems, specially those related to clients,
  5. Include the future as part of the present, by establishing indicators of performance and contribution linked to future prospects and results to be gained (and then, compensated)
  6. Use also the stockholding process and the economic value added measurement to make them feel the way the real world is: winning or loosing on the marketplace of the future by adding or eroding value to each dollar invested in the company.

This process will foster the change by making people think strongly in the future, feeling it in their own hands rather than in other people’s.

As a final suggestion, let me quote again one of my favorite change consultants:

´Far and away the best prize that life offers is the chance to work hard at work worth doing´
Theodore Roosevelt, 1918

Bibliographic Quotations:

  1. The Top Tend Trends (ASTD 1996 Orlando Conference, Training Magazine July 1997)
  2. Hamel & Prahalad : Competing for the future (HBS Press, 1994)
  3. The Hay Group: Flannery, Hofrichter & Platten: People, Performance and Pay (Simnon & Schuster, 1996)
  4. Hope, Tom and Hope, Jeremy: Transforming the bottom line: managing performance with the real numbers (Nicholas Brealey Publishing, London, 1995)
  5. Bernardez, Mariano: Rethinking the bottom line: the last frontier and first step for organizational change (To be published some day)
  6. Bernardez, Mariano: Begin Small. Change Big (Management Review, June 1997)
  7. Bernardez, Mariano and Silvana Torres - Using CBT and EPSS for enhancing communications and cultural change (Proposal submitted to ISPI’s 1998 Chicago Conference)
  8. Kaufman, Roger: Strategic Thinking (ASTD, ISPI, 1996)

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