Editor's Note: What can Sir Isaac Newton teach us about people and their pay? Plenty, it turns out. Dan Walter explores what Newton's three laws of motion can teach us about doing employee compensation right (and wrong) in this Classic post.
Recently my fellow Comp Café-er Stephanie Thomas wrote an article titled The ‘God Particle’ of Total Rewards. In it, she discusses the Higgs boson particle that seemingly holds the key to why things have mass and the secret ingredient in compensation programs - people - and how they hold things together. This got me thinking about how some of the most basic laws of physics control some of the most profound aspects of life. Given the fact that my last physics class was almost 30 years ago, I thought I’d take us back to basics. Sir Isaac Newton was a pretty smart guy. He developed three laws of motion that have historically worked well for most humans. With a little (OK, a lot) of poetic license I reframed these three laws below.
I. Every compensation program in a state of uniform motion tends to remain in that state of motion unless an external force is applied to it.
Basically, this says that once something is moving it will continue moving in the same manner unless, of course, something acts to stop or change that movement. Consider your average compensation program implementation. Even the best implementation and roll-out has a few flaws, but it would be great if whatever movement we created at kickoff would remain constant for a while. However, nearly everything that happens at a company and to each individual directly impacts the movement of your program. Changes in goals scrape off a little of your speed. Strife with a boss pushes back against your well-designed program. Little and typically unnoticed distractions slowly drain away even more speed.
Handling this Law requires always being behind your plan pushing, or in front of your plan clearing a path. The push comes from understanding your program goals and being able to translate that into the goals of each key stakeholder and influencer. Clearing the path is mainly about communication.
Law I states: things will not change unless you make them change. In other words, don’t expect change to happen just because you want it to.
II. The relationship between an object's mass m, its acceleration a, and the applied force F is F = ma. Acceleration and force are vectors (as indicated by their symbols being displayed in slant bold font); in this law the direction of the force vector is the same as the direction of the acceleration vector.
This Law explains how velocities change when forces are applied. The greater the mass, the greater the force needed to create acceleration. Also, a greater mass requires more force to slow it down. This is the argument for both rigorous testing before any plan change and small pilot programs when the final number of people involved will be large. It is fairly easy to redirect, speed up or slow down a small group. Large groups, on the other hand, take enormous amounts of effort to get moving, to change direction or to slow down or stop. It is easier to stop a toddler on a trike than a fully loaded locomotive.
Often people wonder why compensation programs at very large companies tend to remain fairly constant regardless of popular trends. This law explains this. While it is possible to make fairly quick movements with even the largest plans, the force (staff size and budget) required to execute and control the movement is seldom within the range of what compensation departments are allocated. The only hope for achieving quick movements here is to show how the quick movement of the compensation program can lead to an equally quick movement in company success.
Law II states: making changes becomes harder the bigger the group or issue gets. In other words, don’t wait to make changes and when you do make changes make sure they work small before you try them big.
III. For every action there is an equal and opposite reaction.
This law is the tricky one for compensation professionals. Basically, it translates into: “Every time you do something great, expect to deal with something bad. I often hear this referred to as the “Law of Unintended Consequences.” In truth, if the action taken was deliberate, the opposite reaction should also have been fully expected.
The place I see this happen most often is in pay for performance programs. The performance award goal says to maximize revenue, but there is no mention of controlling costs or risks. The sales commission programs says you get paid a bonus on what you close in Q3, but does not specify that the deals need to stay closed through a given date in the future. The raise is given to keep an important person who would have been happy with half as much had they just not been “forced” to go interview somewhere else.
Law III states: that there should be no unintended consequences if you plan and design with forethought. In other words, every time you work to motivate an action or feeling, determine exactly how that motivation may also result in exactly what you don’t want.
While the ‘God particle” may still up be for debate, these basic laws are proven. Use them to your advantage or spend most of your time dealing with their consequences.
Dan Walter just changed his bio and is checking to see if you are reading this. Dan is a CECP and CEP and is the President and CEO of Performensation. He is passionately committed to aligning pay with company strategy and culture and is considered a leading expert on equity compensation issues. Dan has written several industry resources including an issue brief on Performance-Based Equity Compensation than Dan refers to as informative written Ambien. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @Performensation.