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EQUITABLE COMPENSATION SYSTEMS

One of our services is the design and implementation of differential compensation systems. This is a brief presentation of our conceptual bases and our technology.

WHY DO PEOPLE WORK? THE PROBLEM OF COMMITMENT, OR “MOTIVATION�.

Requisite Organization theory offers a simple theory on what people want from their employment:

  • The opportunity to fully apply their capabilities.
  • An equitable differential compensation for their work.

The second item means that compensation should be different for every employee, and that it must be felt as fair by everyone. The purpose of a good compensations system is to create and to support this situation.

A significant discovery within this theory is that systems drive human behavior. Defective compensation systems foster greed, mistrust, lack of collaboration between colleagues and the achievement of limited, short-term results to the detriment of genuine value adding to organizational objectives. Good compensation systems, on the other hand, encourage mutual trust and respect, and personal integration to the organization. They induce people to focus on their tasks, instead of dispersing energy in defending themselves from feeling of inequity and in trying to protect their income. Poor systems attempt to rely on incentives (the “carrot� approach), whereas good ones give fair recognition.

OBJECTIVES

A good compensation system pursues two objectives:

  • To compensate all employees in a differential and equitable manner.
  • To keep a position in the market that will allow the organization to attract and keep qualified employees.

THE RATIONALE

Several decades ago now, Elliott Jaques made a remarkable discovery: people in employment organizations have a strong and vivid feeling both of the level-of-work of the roles they perform and of the monetary compensation that is fair for such roles within their economic area.

This discovery was given the name of Felt Fair Pay. The purpose of a compensation system is to approach as closely as possible the situation in which the compensation employees actually get matches their intuitive notion of felt fair pay for the roles they occupy. A body of research offers rigorous statistic validation on the monetary values people feel as fair for the level-of-work they do (see “MEASUREMENT OF WORK ROLES�. For bibliographic references, see RECURSOS) RESOURCES page.

The system we use supports the setting of differential compensation on the basis of two main variables:

  • The level-of-work of the employee’s work role.
  • The employee’s level of effectiveness in his or her role.

It is sometimes appropriate or necessary to use other variables in addition to these two, but they fill a secondary function.

THE COMPENSATION SYSTEM

The design and implementation of an equitable system requires the following actions:

  1. Measuring the level-of-work of roles by means of the Time Span of Discretion method.
  2. Grouping work roles of comparable level-of-work, whatever their position in the organic structure, their technical / managerial profile, the resources employed, etc.
  3. Building remuneration scales for each of these groups. These scales have minimum and maximum monetary values, and several pay bands differentiated by a percent progression.

The operation of the system requires the following components:

  1. Managers evaluate personal effectiveness of their direct reports (see EVALUATION OF PERSONAL EFFECTIVENESS.)
  2. The MoR (manager once removed) of evaluees holds a meeting with his or her immediate subordinate managers who have done the evaluations, which are examined jointly by all participants. The MoR’s function in these meetings is not to supervise and revise individual evaluations, but rather to ensure that all use similar degrees of strictness in their evaluations.
  3. Evaluations resulting from these meetings determine directly the level of compensation within the pay scales that include evaluee’s roles.
  4. Managers communicate evaluations personally to each direct subordinate, and the resulting change in his or her compensation if any.

    5. Thus, the classification of roles in a pay scale accounts for level-of-work, and the effectiveness evaluation of managers for the level of effectiveness.

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