By John Gibbons

I recently had to have my entire upstairs rewired. You might think that I live in an ancient house or perhaps I'm in the middle of a major remodeling project, but you'd be wrong - my wiring was fine. When I bought my house in the mid-1990s the electrician I hired to conduct the pre-purchase inspection noted that all of the important hardware throughout the house had been completely updated in the 1980s, and that the old fuse box had been replaced with modern circuit breakers.

So why did I have to get the upstairs rewired? Because the 1980s-era owners didn't anticipate that the bedroom of the 21st century would feature a high-definition television, a DVR box, a laptop port, an iPod speaker system, and a smart phone charger all operating at the same time. So, while I don't consider myself a heavy technology user, apparently my circuit box did. Over the past eight months I have made almost weekly trips from my bedroom to the basement utility room to reset the upstairs circuits.

The problem was not the previous owners' fault. The problem - and it turned out to be a fairly expensive one - was that when they updated the wiring over twenty years ago, they were looking to meet the standards of the time and not anticipating the electrical needs of the future.

The problems I've been having with my house are fairly reflective of the problems in the field of compensation today.

Consider the latest headlines from Europe last week: Bloomberg reported that major banks including Barclay's, Royal Bank of Scotland, UBS, and Credit Suisse have announced massive job cuts, with more than 70,000 jobs lost just since July.

How did this happen? It began in 2009 in response to the storm of public criticism against bloated bonuses awarded to bankers at a time when the entire global financial system was on the brink of collapse. Compensation executives worldwide quickly responded. In many cases, their solution was to shift their traditional formulas for total compensation from ones that delivered large bonuses on top of modest base salaries to ones that provided rich base salaries with modest bonuses.

If you recall, the rationale for many of these changes - including virtually no decreases in net total compensation - had two objectives. First, investment banking compensation executives reasoned that in order to keep top talent, the banks couldn't decrease total compensation. Second, to avoid public scrutiny, many of them decided to shift the weighting in total compensation from bonuses to base salaries.

The basic flaw with this strategy was driven by the way that the field of compensation operates in general - and has less to do with the shortcomings of compensation executives in the investment banking industry in particular. Specifically, the flaw stems from the fact that, largely, compensation strategies are focused on the past and on the external environment rather than on the future and internally on the direction that the company needs to take. Compensation plans are inevitably driven by market pricing, cost of living changes and industry salary movement - and less on future industry trends, the need to build flexibility, or the long-term downward pressure on the salaries offered by companies that are facing tough economic times.

And, in the case of investment banking in the period from 2008 to today, the impact of this failure to focus on the future has been devastating - particularly in Europe. Most Americans don't realize that, unlike the U.S. workplace, most European salaries are locked into place by employment contracts that are not flexible once an offer is formally extended and agreed upon with an employee. This kind of "lock" is not common in standard U.S. employment agreements in which salary cuts can take place if the financial position of a company changes after an offer is extended. Additionally, like in the U.S., bonuses in Europe are not generally considered to be part of one's guaranteed salary and therefore, were understandably flexible.

By shifting the emphasis of total compensation from bonuses to base, European compensation executives committed the fatal mistake of locking their companies into agreements with their employees, which resulted in commitments to continue to pay the high total compensation figures of 2008 - even while the markets continued to deteriorate. And to make matters worse, they made these commitments in Europe, where they had few options but to either continue to commit to these levels of total compensation or resort to layoffs.

Now we are seeing the results of these compensation executives' decisions - more than 70,000 banking layoffs in Europe since July.

These events reveal two lessons that the HR community is learning the hard way:

1.Compensation packages are governed by different laws around the world and need to be built with a degree of flexibility with these laws in mind.
2.And more importantly, compensation executives should be less focused on market pricing and more focused on the trends in their industries if they are truly interested in servicing the strategic interests of their companies.

To be fair, compensation executives are now facing a very different business landscape than the one they faced in 2008. Comparatively, electricians in the 1980s shouldn't have been entirely expected to be able to anticipate the wiring needs of the household of the information age. However, in both cases the consequences of failing to anticipate the future have had significant financial consequences.

John Gibbons is the Vice President and General Manager of Research and Development at i4cp. He has been a human resources practitioner, researcher and thought leader in human capital strategy for more than 20 years. His work has been featured in hundreds of publications and news outlets around the world including the New York Times, The Wall Street Journal, The Financial Times, CEO Magazine, CNBC, CNN and National Public Radio (NPR).