It is my contention, after spending almost forty years in the pay management business, that most organizational pay systems although fairly well intended are mostly mythical beasts that in practice suffer from implementation malaise.
In this piece I am going to lay down the framework of some of the following essays that will follow in this blog further elaborating on the primary premise that has been stated in this essay.
Internal equity is a stated core objective of any pay system. Internal equity means that within the organization the intention is to pay employees according some logic based on the work being done and the value of that work to the specific organization. Well this a valuing system. And as such it is quite subjective and is thus fraught with confusion and mistrust. Systems and structures used to achieve this internal equity principle does not necessarily reduce the subjectivity. Rather these systems are at best rational and cannot be scientific. Human judgement and biases do play a big role in the distortion process. This is one area where the chasm between theory and practice is wide. More on this in a future blog.
The stated pay system principle that is often widely adopted is pay for performance. Although well intentioned, in practice this principle rarely achieves its stated purpose. This is because here again human judgement with all its biases quite often raises its ugly head. More on this in a future blog.
The principle of market competitiveness is an important structural principle of a pay system. But suffice it to say, here again gathering and validating believable market data for their use in pay systems is always questioned in both the positive and negative directions if the data does not say what the recipient wants to hear. More on this in a future blog.
Special interest thinking dominates the pay ethos thus creating all kinds of aberrations in the pay system. Executive Pay, allowances, perks, equity plans, adders, differentials all tend to create a great deal of confusion and controversy and as such widening the chasm between principle and practice. More on this in a future blog.
Another widely sustained principle in pay systems is variable pay, as formulated through bonus and incentive arrangements. Although in principle this is very sound thinking but in practice the system wilts under the pressure of management discretion and the realities of continuing talent management challenges.
Then there is the deep chasm created between the difference between principle and practice of equity compensation. Sharing ownership with managers and employees is a noble principle of effective reward management. But that principle suffers from the vagaries involved in the actual practice and operation of these plans. More on this later also.
Finally, see my essay on structural poverty in the design of the pay systems. Here is another big reason for the huge chasm between principle and practice. A blog on this to follow.
Thus I want to end this introductory essay with a quote from one of favorite books (People Specialists – author Stan Herman – unfortunately the book is out of print). In this quote the author very appropriately explains what one can expect from pay systems after all:
“The point is that there are some things that compensation administration can be expected to do and other things that it cannot. It can help establish a limited and transient orderliness in the way people get paid. It cannot structure a sublime and everlasting order where everybody’s pay is self-evidently equitable and proper in comparison to everybody else’s pay.”
“The quest for a neat correlation between work and reward is a natural one which fits nicely with most people’s idea of the way things ought to be. But the fact that they ought to be does not mean they are. Money value determinations are not the products of fine, dispassionate measurements made in the dust-free, dehumidified atmosphere of a laboratory. Rather they are continually buffeted and rebuffeted in the turbulent environment of the messy outside world, and not merely on a supply and demand basis, either.”
But all is not lost there is very new thinking as to how to really mitigate the chasm and create greater harmony between principle and practice in pay systems.
There is power point presentation in my website (www.biswasandassociates.com), in the reference page that explains this new thinking. Those interested can look up the reference.
