If you want to know what your colleagues earn, you should ask them. Germany has had a law on wage transparency for two years now. And yet you seldom hear the question, “What do you earn?” New Work looks set to change that.
This is because, where work is agile, where hierarchies are being broken down and where self-management begins, teams are increasingly asking, “Have you actually earned it?”
Up to now, pay levels in compensation systems have been set using industrial age criteria such as:
- Role and responsibility
- Time spent at company (sometimes)
- Collective wage agreements (sometimes)
Sales departments have long used performance-based variable pay. But people who work in other departments of the same organisation can consider this remuneration system unfair, because employees in sales often receive bonuses and premiums as if they alone are responsible for success.
Rethinking variable compensation systems
New Work is creating a growing need for transparency and clear salaries based on new, fair, variable compensation systems. Variable incentives such as bonuses and commissions that are widespread in sales have too little influence on a company’s success. But what variables do motivate staff?
In the past, it was how well you performed that determined what you got paid in a business. Nowadays it takes a variety of competences in a team to succeed in a market. But who contributes to success? Does the answer change from one project to the next? And is compensation always money, or are there other variables and incentives? What variable remuneration do staff actually want? What increases motivation?
Variable compensation for New Work
We need money to live, so we want to earn money by working, but the New Pay concept aims for more than that. It describes variable remuneration. The premise for this is that every business has to develop its remuneration model itself as a process and a practice. Staff will only accept it if they help shape it.
Consultants Sven Franke and Nadine Nobile and journalist Stefanie Hornung coined the term ‘New Pay’ in their 2018 book New Pay: Alternative Arbeits- und Entlohnungsmodelle – Alternative Working and Compensation Models
Their aim was to make the compensation of work agile. To the consultants, a new remuneration system was the next logical step towards agile teams, autonomous work and progressive organisation in businesses.
Features of flexible compensation models
There are a lot of different concepts describing how to compensate employees variably. Each business has to develop its own compensation system – one which employees find fair and motivating, say Sven Franke, Nadine Nobile and Stefanie Hornung in their book. They gathered together numerous examples from the world of business. Finding a new remuneration system begins by defining what we understand by fair pay.
Answers can vary, but new variable compensation systems all have certain things in common:
- No more one-on-one pay talks. The question of pay is discussed as a group and answered as a group.
- Personal responsibility includes seeking fair ways of compensation.
- Instead of demanding more pay individually, people take joint responsibility and lead by example.
- Matters of pay are no longer a question of power between superiors and staff.
Variable remuneration gives employees the chance to use other variable portions of income aside from their salary. How much time do I have for myself and for my private projects? How flexibly can I work? What will help me and my learning biography? Can I use my expertise voluntarily for a really good cause?
- Bosch (global corporation): several departments are looking for their own ways of instituting new compensation models. Individual bonuses have been abolished at sales. Instead there is now profit-sharing. In the Power Tools business area, some scrum teams in Europe and China have developed their own remuneration system. The product owner is chosen by the team. They discuss an increase in basic salary with members of the team.
- Elobau (medium sized business): this manufacturer of sensors based in Allgäu responded to bad employee satisfaction ratings by developing a fair compensation model. An agile and hierarchy-free way of working was introduced in the process. A core team drew up proposals that would be accepted by the majority to encourage consensus. The majority of employees approved the remuneration system, which applies to sales as well: basic salary, a portion relating to levels of solidarity, collaboration and customer orientation, a premium for delivery reliability, and a premium based on annual profit.
- Borisgloger Consulting (small business): the employees who work at this Frankfurt-based management consultancy are agile in their approach and were increasingly dissatisfied with conventional remuneration. A group developed their own remuneration system and founded a salary guild. They took their annual budget for salary increases and assessed each employee once a year according to five criteria. The matrix they applied achieved the fair remuneration and transparency they had been missing.
Three stages on the way to New Pay
Teams looking for a new remuneration model need stamina, patience, lots of trust and a system. The issues involved often trigger long discussions. It is not easy to leave behind old ideas about performance-based pay and arrive together at a fair formula for compensation. Questions of compensation always become questions of values and culture in a business.
If you want to begin the process, you should consider three phases in the development of your own variable compensation system.
- Prepare: What does performance mean to us and what does it mean in terms of compensation?
- Define: How can we measure and evaluate together the way we contribute to our business’ success? Who should be allowed to make the decision?
- Learn: Does our remuneration model still suit us, our working model and our values, or should we change our new payment model?
What do I earn and what do you #earn? Why is it more or less, why fixed and not variable? Fair, transparent and easy to understand: New Pay. Read more at #jobwizards https://bit.ly/3gnjJ8z