IBM has dedicated $100 million to institute a major change in how HR is managed and operationalized. And the center of this change is to focus on defining work not based on jobs but on skill and competence. And they will have three types of work: executive-professional, managerial, everyone else. And this for a ‘brand name organization’ that is universally copied and defines ‘best practice’ as it relates to many HR practices and programs.
As a ‘big bear’ like IBM rolls out of the woods with new practices you can almost hear the earth shaking around traditional organizational design and siloing of talent and even the stagnant ‘job’ as the foundation of organization design. Fluidity and a focus on the key elements of work and preparing people to grow and learn valuable capabilities and apply them to meeting organizational goals—pretty heady stuff we would say.
So, now what happens? Businesses have spent years getting pay systems current, competitive, and attractive to a scarce talent workforce. In most part we focus on the jobs to which people are assigned and not on the capabilities they bring to the workplace. We need to spend more dollars than we hoped on benefits, especially healthcare. We now know that organizations that pay for performance are most likely to achieve their goals—and the top 20% of the performers want to be paid for performance. So dollars need to be directed to rewarding the people who add the most value or they will work elsewhere. The best talent is probably working for someone else and businesses need to attract them away.
Some New Pay Basics
We need to create some new pay basics about pay design and management for the developing challenges and opportunities to be faced going forward. Most are at the foundations of good pay management, but need some ‘championing’ to translate them into becoming ‘best practice’. .
Here’s a few “new pay basics” to start thinking about:
Work Redefined: Pay designs must accommodate both the traditional jobs that comprise most organizations and the work families that probably reflect the future state of organizational designs. Workforce members in the top 20% of performers need to be recognized for the value they add to the business. People and not jobs add value to the business. Whether the foundation of the pay program is job or skill based or some combination as people become more valuable they should be higher paid. And the priority of pay budget should go to paying for performance because that is what creates value for the business.
Total Cash: Organizations need to begin (or continue) to communicate with employees about total cash compensation, not just base salary. This means that rather than just suggesting that the organization intends to emphasize competitive base salaries, the focus should be on competitiveness in terms of base salary plus incentives or variable pay. With 80% of organizations having employees below management in variable pay, companies need to begin to take credit for the incentive awards they pay.
Competitiveness: We are in a permanent scarce talent crunch. Better analyzed information on markets and area differentials are going to be essential for the future. Organizations need total cash compensation information—base pay plus variable pay equals total cash. And they needed it in consistently analyzed form because the chance for analytical error is significant.
Internal Comparisons: Companies just can’t afford to try to compare jobs across the company for the purposes of “internal equity” any more. Because jobs of seemingly similar internal value may indeed differ in their market value, the only internal comparisons that make sense are those with a single functional area. For example, internal comparisons within information technology may make sense, comparing jobs in information technology with those in accounting may not. You don’t want to underpay jobs in a scarce talent part of your business and overpay jobs in an area of your company where talent is less scarce. This could mean that you don’t get the very best people in the scarce talent area but only get top people in areas that may not be currently suffering from talent shortages.
Strategic Value: Some jobs are more important to your company than are others. While this varies from company to company, it is a business reality. For example, Intel probably finds software designers to be of primary strategic value, 3M may view film technicians as most important, and General Mills may view marketing talent as more critical from a strategic perspective. This translates into watchfulness as it relates to paying competitively. When pay adjustment budgets are scarce, companies must direct available dollars to the talent they must rely upon for their future. So, scarce pay dollars need to be reserved for those who hold the most strategic jobs in the company. And this probably means communicating to the workforce about the importance of getting and keeping the talent upon which the business most relies for its business future.
Variable Pay: Companies have increasingly moved to more variable pay for non-management jobs. This is a most important move because the measures and goals used for variable pay communicate to the workforce about how they can add the most value to making the business a success. Also, because of the team nature of variable pay, it permits the business to focus on goals that are shared between and among a number of people. Companies like Microsoft, Amazon.com, Monsanto, and Dell have worked this strategy successfully...
Close-in Metrics: While companies need to be successful to pay strong levels of total cash compensation, employees must believe is within reach for them to receive variable pay awards. This means considering some combination of measures that have to do with the financial success of the company and some metrics that are closer to the direct impact of the employees in the variable pay plan. For instance, revenue performance and another may fund one part of the incentive award by a small team measure of success close to the employees. For example some measure of productivity or quality may pay something in the form of an incentive even if the revenue goals of the company are not achieved.
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The Future is about Change
It’s no longer possible to implement a pay solution and leave it in place for a decade or two. Those days are over. It’s no longer a “one size fits all” pay world. Considering total cash rather than just base pay, becoming more concerned about how competitiveness defined, focusing only on internal comparisons within specific area of skills that share similar scarcity in the market, focusing on strategic value to spend dollars in areas where talent is closes to the reasons you are in business, making a commitment to use variable pay wherever practical, and using close-in metrics so employees can see it is likely they will receive an award, are some of the things to consider.
