Editor's Note: Many organizations and leaders resist structure in their pay practices; this is particularly true for smaller, more entrepreneurial businesses and many nonprofits. Margaret O'Hanlon brings science to bear on this Classic challenge and explains why this ultimately may not serve the organization, its mission or its people well. Listen up!
To jump on market opportunities, entrepreneurs love to exercise unrestrained initiative that involves risk. To change the world, non-profits encourage bold initiatives meant to unsettle the status quo. Perhaps that's why, in my experience, both start-ups and non-profits are the organizations that most often report that they have neither salary structures nor systematic compensation practices.
By their nature these organizations have a high tolerance for shoot first, aim second. Innovation is the very reason they exist. But when it comes to employee compensation, time is not on their side. In its section on the Chaos Theory, Wikipedia tells us, "Chaotic systems are predictable for a while and then appear to become random." As it turns out, even randomness can be plotted . . . and so can the outcomes of cutting individual pay deals.
In start ups, the initial rush to get going is on the founding employee's side. Ask and, pretty regularly, you receive. The money you're paid is obviously an investment, and the person who is paying it wants to feel like they can make things happen (like an effective entrepreneur).
It makes some sense . . . until it doesn't. Most notably if you are treating your salesforce this way. Nothing angers a real competitor more than when there are different, unspoken rules for different players in the same competition. When your salesforce notices -- that is, when you can no longer afford to keep throwing money at them -- their motivation will waiver just at the time you need them most.
In non-profits, everyone in the organization is aware of the difficulties of staying ahead of financial and operational challenges. "We all need to pitch in" is an organizational value that often takes precedence over attention to pay practices. The thing is, while their employees are strongly devoted to the Mission, they are also accutely attuned to unfairness in the world.
By their nature, both types of organization think it makes good sense to take what they see as bigger risks that leave pay policies in the dust. They are well intentioned but misguided, and it's our job to point it out early and often -- whether or not the CEO has compensation on the agenda. Consistent, strategic pay practices are not simply a recruiting or overhead issue for a small, dynamic organization, they are part of an operating strategy designed to keep the company healthy and focussed.
As we all know from personal experience, you can buy just about anything but if it's mainly on impulse, chaos can ensue.
Margaret O'Hanlon, CCP brings deep expertise to discussions on employee pay, performance management, career development and communications at the Café. Her firm, re:Think Consulting, provides market pay information and designs base salary structures, incentive plans, career paths and their implementation plans. Earlier, she was a Principal at Willis Towers Watson. A former Board member for the Bay Area Compensation Association (BACA), Margaret coauthored the popular eBook, Everything You Do (in Compensation) Is Communications, a toolkit that all practitioners can find at https://gumroad.com/l/everythingiscommunication.
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