HR Group, founded in Edmonton Alberta in 1993, is a partnership of highly experienced management consultants who specialize in organizational effectiveness and human resource management, and promote participative, lean, and cost-effective management practices. All partners are Certified Human Resource Practitioners with extensive senior level experience in both the private and public sectors.

You Get What You Pay For

Reprinted from “Productive Workplaces” (October, 2004), the HR Group newsletter.

“The greatest single obstacle to the success of today’s organizations is the giant mismatch between the behavior we need and the behavior we reward.”
Michael LeBoeuf (1985, p.23)

When we talk about rewards, we are referring to all monetary compensation, all health and insurance benefits, all paid time off, and all other rewards, benefits, and perquisites, be they monetary or non-monetary that we receive from our employment.

Lack of Alignment

Of all the people management practices that we have discussed in this newsletter, rewards are probably the most frequently misaligned with the core principles of a productive workplace and the last to be changed. There are countless examples of hypocrisy in this area that we can read about everyday. The “golden parachutes” for incompetent executives, the enormous executive salaries despite poor organizational performance, the rollbacks to employee wages, but not to management’s, and the greater percentage raises for management than for the employees, are just a few such examples. Regardless of how much attention is being paid in other areas to creating a participative workplace, those changes will not succeed if such contradictory messages regarding rewards are being sent to all employees; they are neither that stupid or that gullible.

One recent example of management hypocrisy in this area is found in the April 2004 issue of the magazine “Workforce Management”: “Two workers at a top U.S. airline came up with an idea that brought in $3 million in additional profits each year. When they were given a paltry $1,000 instead of the 10 percent reward to which they were entitled, they took the airline to court. The case reached the California Supreme Court – twice, no less – and directly involved the airline’s CEO. The company ultimately abolished its suggestion program because of disputes over rewards.” Unfortunately there are many companies out there that probably feel that the employees should consider themselves fortunate to have gotten even the $1,000 in the first place.

Traditional Views

A lot of these practices are reflective of long held views regarding compensation and rewards in general:

  • Managers deserve much more than employees; after all they are in charge, know more, and have more responsibility.
  • Managers should be paid according to the number of employees they are “responsible” for.
  • Managers are entitled to rewards for increased productivity, but not employees; because after all it is managers who are “responsible” for employee productivity.
  • Managers are entitled to greater flexibility as they are more “responsible”.
  • Managers are entitled to various perquisites in recognition of their higher status and worth to the organization.

There is a long history of a sense of entitlement and self interest that has, unfortunately, gone too far lately as evidenced by so many examples today of corporate excess regarding management compensation.

The Giant Mismatch

The mismatch that Michael Le Boeuf (1985) refers to is not only a result of such traditional views, but also the result of many traditional pay practices that are based on outmoded management practices and concepts:

  • Money and other extrinsic rewards are the prime means of motivation for greater productivity, greater sales, etc.
  • Quality, customer service and safety are not rewarded; productivity is.
  • It is individual performance that matters most and must, therefore, be rewarded.
  • If you make mistakes, they will be reflected on your performance appraisal and you will receive less of a raise.
  • Pay is primarily based on seniority.
  • There cannot be any flexibility in compensation plans in order to ensure equity.
  • Compensation is a big dark secret that cannot be shared and must not even be discussed amongst employees.
  • Profits are for owners and maybe shared with some managers, but not with employees.
  • Pay is based on the job, not the incumbent.

These are just some of the prevalent pay practices that stand in the way of the productive behaviors that are required today on the part of employees at all levels in the organization. As Michael Le Boeuf (1985, p.23) says, the greatest management principle in the world is:

“The things that get rewarded get done.”

It’s the old adage, “You get what you pay for”, and we’ve been paying for the wrong employee behaviors for a long time:

  • We need employees who show initiative and creativity and who problem solve, yet we reward seniority and penalize employees for mistakes.
  • We need to hire the best talent, yet we have rigid compensation policies that stipulate, for example, that you cannot hire above the midpoint of the salary range and you have to start at the bottom regarding the amount of vacation that you can expect.
  • We need employees who take ownership, yet we won’t give them any in the form of compensation.
  • We need quality and customer service and safety, yet we reward productivity above all else and frequently to the exclusion of all else.
  • We need teamwork, yet we assess and reward individual performance.
  • We need employees to focus on the overall work rather than a narrowly defined job, yet we base compensation on the job.
  • We need continuous improvement, yet we unnecessarily penalize employees for not following rigid policies and procedures.
  • We need cross-functional thinking and cross-trained employees, yet we base compensation on the narrowly defined job.
  • We say we value our employees, yet we still favor management with perquisites such as choice indoor parking spots, flexible time off, and additional benefits that are not available to employees.

Pay raises based on performance appraisal

One prevalent concept today, that merits individual attention, is that raises must be based on some form of performance appraisal and that only partial increases or none at all should be granted to those who are rated as substandard performers. There are several problems with this practice. Why do we retain substandard performers in the first place? Why are we, in effect, condoning poor performance by accepting it at all? What is being done to ensure that the employee performs at the desired level?

Withholding pay will do nothing to the performance of an employee who requires coaching and training or, failing that, requires placement in a position which they can do well or termination. We have already seen that annual performance appraisal is a highly ineffective management practice; withholding pay increases based on such appraisal is equally ineffective. Employee performance and behavior must be dealt with separately outside of any compensation practice. If the employee is not performing up to the level desired, the answer is not to pay less, but to bring the employee’s performance up to the required level.

We wholeheartedly agree that performance should be rewarded, but compensation is not an effective tool for influencing individual performance. If teamwork and ownership are desired behaviors today, then compensation should reflect team and organizational performance. Individual performance must be attended to through ongoing daily performance management.

Ownership

William Bridges (1994, p.162) says that, “Two unrelated trends are further undermining the traditional salary. One is the shrinking of simple ‘pay’ and the expansion of shared earnings. The share can take the form of a bonus, stock options, or profit sharing, but in any form it de-emphasizes the job and emphasizes the work done and the contribution made. It also blurs the line, which jobs and salaries made very distinct, between the employee and the owner, and it does so with the intention of capturing from the employee the commitment felt only by someone with an ownership stake in a business.”

The concept of greater sharing of rewards based on organizational performance, no matter what form the sharing takes, is somehow still viewed by many as a socialist tendency. From our point of view, sharing in the rewards is a logical extension of a capitalist philosophy, just as owning shares on the stock market is. It also makes good business sense as it favorably affects the bottom line. Such practices are not being promoted today purely because it’s the “right” or “ethical” thing to do; they have a direct positive impact on overall productivity and the bottom line.

If you want employees to take ownership, then you have to give them ownership. This does not mean actual ownership of the company, but it does mean that employees must share in the fortunes of the company both for better and for worse. All other means of promoting “ownership” are a pretense and seen as such. Purely calling someone an “associate” just doesn’t cut it.

Pay for Competencies not the Job

The second trend that William Bridges is referring to is that of paying for skills or overall competencies. He refers to an article by Milan Moravec and Robert Tucker (1992, pp.22-25) in which they point out that we cannot recognize or tap into the talents of individual employees until, “we change the way we design, allocate, and talk about work….The focus should be on people’s skills and behaviors, not on jobs.” So many organizations talk quite sincerely about the need for productive employee behaviors, yet they continue to pay for the job.

“It is a truism that you get what you pay for, and with organizations needing to get new levels of effort and new degrees of flexibility from their workers, new kinds of compensation are going to become commonplace.”

  • William Bridges (1994, p.163)

References

Bridges, W., 1994. Job Shift. Reading: Addison Wesley.

LeBoeuf, M., 1985. The Greatest Management Principle In The World. New York: G.P. Putnam’s Sons.

Moravec, M. and Tucker, R., 1992. Job Descriptions for the 21st Century. Personnel Journal, June.