It may be time to “sharpen your knife” regarding reward systems. Organizational needs and employees’ expectations about work and careers are changing, making traditional job-based pay systems less effective or, in some cases, even obsolete. In a recent article in WorkSpan titled “Refining Rewards for the Millennial Generation,” Ken Abosch, a partner with AON, PLC, discusses some of the following insights:
- Organizational structures are flatter, resulting in fewer levels and opportunities for promotions and traditional job growth.
- Work is often matrixed, involving work teams or task forces that create multiple, dotted-line reporting relationships.
- Employees work remotely, often collaborating with a diverse team of both regular and contract employees and consultants.
- Job descriptions are dynamic. Duties are frequently changed or modified, making “now my job” rather than “not my job” an accurate description.
- Job security is a thing of the past. Employees create their own career stability, taking responsibility for learning and adding to their capabilities, thereby enhancing their value to their current and future employers.
- Employees expect recognition for their achievements.
Traditional reward systems
Compensation administrators oversee pay systems that are externally competitive and internally equitable. Jobs are matched with market positions based on prerequisite training and experience and assigned duties. As jobs become more dynamic, however, they become more difficult to match. Many jobs today represent a hybrid of multiple traditional roles subject to change based on circumstances. Often, by the time a job is successfully priced, it has already changed.
An employee’s pay is largely defined by her job, with minor variations attributable to performance and the person—e.g., individual differences like experience, training, longevity, and personal characteristics. The goal is to maintain internal equity, ensuring that pay differences are objectively determined and not the result of bias or prejudice. As a result, pay systems have become egalitarian.
Current workplace dynamics demand that pay systems adapt to changing needs and preferences. Driven by a company’s compensation philosophy, which connects strategy, culture, and rewards, employee pay is a function of the job, the person, and the performance. Pay for the job represents the largest share, but a philosophical shift is needed to increase the weight given to the person and the performance.
Job families help a company order its jobs based on factors like nature of work, technical discipline, or managerial level to create a hierarchy of job levels. That provides a career path for employees. As each job level is mastered, the employee becomes eligible for promotion to the next level.
Using the same framework, levels can be defined by employees’ contributions rather than their specific job. As the scope, complexity, and impact of assignments increase, an employee’s earnings potential goes up and she advances to higher salary bands. Career progression becomes a function of demonstrated competencies. Different competency paths can be established for different avenues, such as leadership and individual contributions.
So the question remains, which attributes should be included in the leadership development curriculum? Jack Zenger and Joseph Folkman published an article in Harvard Business Review describing the results of their research on the most needed leadership skills. They polled more than 300,000 lower-, middle-, and upper-level managers, asking them to identify the skills that were most important. While the order varied somewhat between management levels, the top seven were the same:
(1) Inspires and motivates others.
(2) Displays integrity and honesty.
(3) Solves problems and analyzes issues.
(4) Drives for results.
(5) Communicates powerfully and prolifically.
(6) Collaborates and promotes teamwork.
(7) Builds relationships.
For a variety of reasons, companies are often uncomfortable with pay for the person or for the performance. Yet new realities in the workplace demand that we consider alternatives to a tradional job-based approach.