The Changing Game, and a Door That Swings Both Ways

So, the game is changing.  The recession has ushered in a host of changes to the employment relationship, many of which we are just beginning to grasp.

On the reward front, asI mentioned last week, many employers are using the economic crisis as an impetus for hitting the reset button on their compensation programs.  The experts predicted it, and I am watching it happen from my own ringside seat.  The biggest outcome of that reset button being hit: A shift in reward emphasis from fixed base salaries to variable (incentive) pay.

Yes, there continues to be interesting debate and discussion on the interwebs about the value and viability of incentive pay, but here in the real world where the rubber hits the road and businesses are fighting to remain viable, this is happening.  With agility surfacing as an essential ingrediant to future prosperity (even survival), organizations will need fluid, flexible cost structures and talent pools to succeed.  And this kind of flexibility simply doesn't come by putting the bulk of our discretionary reward dollars into fixed base salaries.

But here's what I think is an interesting sidebar to this trend: The changing game is a door that will, and ultimately must, swing both ways.  If employers want to put employees' cash compensation at greater risk by tying it to performance, they will have to support this new game with increased transparency and education.  Employees whose pay is increasingly tied to the success or failure of projects, business units and even entire organizations will increasingly demand the information and help they need to track and understand that performance.

Hopefully, employers appreciate, understand and are preparing to address their own obligations and risks in this new game.

Interesting times are indeed coming.

Comments

[Joe Brown]

Excellent commentary. I believe another contributory trend is the fact that relatively low nominal pay increase percentages, tied to relatively low inflation, make it increasingly difficult to use merit increases as differentiated rewards for performance.

For nearly my entire 20 years in consulting, we have "lived in a 4% world". That is, average annual pay increases have hovered around the 4% market. In that environment, it became difficult to provide merit increases that were perceived to be significantly higher or lower (especially with a 1% increase long considered taboo). I believe this contributed, at least in part to the rise of variable pay as an expression of pay for performance.

We currently live in a 3% world (or perhaps a 2.8% world, based on recent survey results). To the extent that remains true, attention will continue to shift away from merit increases and towards the type of pay linkages that you describe.

[working girl]

So true. You can't just leave variable pay up to the manager any more. There have to be clear rules of engagement.

[E. James (Jim) Brennan]

Unable to simply throw money at people as was the old game, many HR/comp types are going to flounder if they don't wake up to the new reality that the fringe areas of total rewards must be increasingly activated and utilized to satisfy our traditional triad (attract, retain, motivate) mandate. Scares me, to see the number blindly groping for the lemming-like reassurance of "what others are doing" when the current need is "what is right for US to both survive and thrive?" General pay entitlement attitudes must be challenged; without careful allocation decisions, you can piddle away the few dollars available without making any significant positive effect on priority needs.

Despite this being the holiday season, comp people can't continue to be Santa Claus and HR folk must stop trying to win popularity contests. Rather than strain to justify more money for everyone, they better start focusing on identifying who must receive some extra reason to stay... and that goes beyond base pay.

[Ann Bares]

Joe:

Can't deny that the low level of increases is part of what led us here - very true.

WG:

Absolutely - if this is going to be a serious game, we will need to get serious about implementing and supporting it.

Jim:

Sooooo very well said. We can't change our game in an effective way if we are playing monkey-see-monkey-do. We must understand what success will demand of our business and be willing to spend our few reward dollars accordingly.

Thanks - all - for the comments here!

[FH]

Well stated as a theory. However, with the impact of health care reform likely to be negative on employers (which will be transferred top employees) and a long, plodding economic recovery anticipated, the employers will continue to be in the drivers seat for my moons to come. The necessity for transparency will not be so apparent.

[E James (Jim) Brennan]

Granted, the average employer will have less pressure to be transparent in the handling of reward systems.

That is exactly WHY this is a cusp, a fork in the road, a transitional point after which the mass of employers will increasingly separate into those who follow the mushroom school of management, seeing employees as tools to be acquired and maintained at minimal cost until discarded and those who treat their people as their most important, most powerful and most valuable asset. This will enable the ruthless abusers to exploit their workers (boy, THERE's an antiquated phrase) more easily, but it will also create a more dramatic contrast for the enlightened cultivators who will increasingly become the employers of choice with all the concomitant economic benefits. The former group will struggle and shrink, limited to the bottom-dwellers, while the latter will thrive and (hopefully) expand.

[Ann Bares]

FH:

Thanks for the comment. I defer to Jim's response, as he often makes my point better than I am able to.

Jim:

Well said, as usual. I agree that this is a fork in the road. Many may not realize they've passed it and appreciate that they went the wrong way until the consequences are inevitable. Thanks for the clear articulation!

[Wally Bock]

Congratulations! This post was selected as one of the five best independent business blog posts of the week in my Three Star Leadership Midweek Review of the Business Blogs.

http://blog.threestarleadership.com/2009/12/23/122309-midweek-look-at-the-independent-business-blogs.aspx

Wally Bock