Fair Pay, Differentiated Rewards

My last post was a bit provocative – or at least the title was: “An Argument for Unfair Pay.” In the post, I asked compensation pros to weigh in on the idea of “unfair pay” with more of the merit pot going to the top 10% of high performers who arguably do far more of the work.

The comment stream to the post was very informative, even educational. Often, comments get lost. In this case, that would be a missed opportunity for readers of this blog, so I’m bringing the crux of the comments into the heart of this post to share more directly with all of you.

Jacque Vilet, a fellow Café blogger and international HR expert, offered several good ideas for recognizing that top 10% without relying on the tropes of failed merit increases:

“Have a VP hold small group meetings with them and appreciation and also "tap" their ideas for improvement. SMALL INFORMAL meetings -- no surveys... Keep it small, personal and very INFORMAL... Let these employees shadow their VP for a day or two including any meetings with clients and top management. Let them know their contributions are valuable. Give them a project/problem and tell them it's an important one for the company... Let them have access to high level management to discuss progress and to get help in removing any organizational barriers that are keeping them from solving the problem…”

Jim Brennan, another Café blogger, points out that the original “unfair pay” phrase is catchy to draw a point:

“… I would prefer to substitute other terms to describe your otherwise valid points. Paying inequitably, differentiating appropriately and customizing your reward reinforcements for the variable contributions of unique individuals and recognizing exceptional performance would all be nicer ways to achieve the same objectives with friendlier words. The Pareto Principle still applies.”

E. K. Torkornoo agreed that merit pay methodologies are “anachronistic relative to rewarding performance,” offering ideas for effective recognition:

“Beyond attending as well to non-cash rewards that provide a balance of 'total rewards' aligned with your employee interests / values, we need to focus on the things that help high performers (individuals and teams) do their thing. Hire them well; resource and engage them well on projects (instead of making them sit around for too long in dysfunctional groups, or in scrappy work spaces and work environments, etc.); keep them away from terrible managers, narcissistic leaders and distracting politics (to the extent possible); assign them to teams with others they respect, listen carefully and respond to them…”

Ted Weinberger also thinks the merit increase paradigm is becoming irrelevant, offering an additional resource for readers:

“Those of us who have been compensation practitioners for many years were inculcated with the notion of performance levels across employees being distributed as a normal (bell shaped) curve. This notion was compatible with how businesses operated in the late 20th century -- company performance was dependent on the collective contributions of the mass of employees. However, in present day, it is the "superstar" employee that counts. The performance distribution really reflects a Paretial (power law) curve. I refer you to an article in Personnel Psychology 2012 on "The Best and the Rest: Revisting the Norm of Normality of Individual Differences" by O'Boyle and Aguinis for an academic discussion of this subject…

“As compensation practitioners, we will need to change our thinking to accommodate this new reality of delivering more polarized pay treatment that places emphasis on the top 10%. The traditional merit pay program -- with its more broadly distributed pay treatment -- is becoming a less relevant vehicle for this new era.”

Trying to work within existing merit structures, Jules noted:

“Paying fairly means you acknowledge the contributions of your star peformers who went above and beyond hit stretch goals by giving h(im/er) more merit/bonus and not giving merit/bonus to the slackers.”

Tony Bermann-Porter agreed but provides an important observation:

“The notion that you can provide meaningful performance differentiation with a 2-3% budget is fanciful… Besides, why would you want to annuitize last year's performance?”

I appreciate the bloggers and readers of Compensation Café deeply. During my years both reading and blogging here, I’ve learned a great deal. Please keep up the conversation on these important topics of fair compensation and appropriate and meaningful recognition.

As Globoforce’s Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. He is the co-author of "The Power of Thanks" and his articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

Comments

[Jacque Vilet]

Not only do we need to really differentiate pay treatment for top performers --- we need to give extra rewards (cash or non-cash) to those in critical jobs. That's a point that I think can't be made enough.

[E. James (Jim) Brennan]

Something becomes a reward only if it is desired, appreciated and valued by the performer. What THEY want as the prize is key for effective reinforcement. That requires rejecting the conventional preference for uniformity and consistency, because top output producers tend to be unique and inconsistent both in what they do and what they desire.

Differentiation should be the norm in reward mechanisms applied as well as in the employee population affected. The few vital superstars rarely all want exactly the same thing.