Documente Academic
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By : Jim Pinto,
San Diego, CA.
USA
Today's compensation systems were originally developed during the era of hourly-paid
factory workers. For today's knowledge-based employees, performance-based
compensation is necessary. And it's important to include team-success factors.
Employee-ownership has the best results.
The problem with this system is the expectation that pay will continue to escalate.
Indeed, resentment develops when compensation does not increase, at the very
least to keep up with the cost of living. So, with time, some may be paid too
highly when compared to new hires. People who've had many years of service
tend to get comfortable and overpaid for what they’re doing. And when the
company has to cutback, they’re the first to go.
There's the old cliché, "I've paid my dues". New people tend to follow the
"culture", and problems arise when old cultures don’t adapt to new business
environments. Companies tend to drift along with an old culture, replete with out-
of-date processes not compatible with today’s reality.
Performance-based
There are two ways to motivate people – the carrot and the stick. Competitions –
prizes (carrots) for the winners – tend not to work because only the top few who
feel the awards within reach tend to try harder. Most of the others, recognizing
that for them winning is not possible, simply ignore the competition and continue
to plod.
Jack Welch of General Electric came up with a solution to this paradox. When he
took over GE was profitable, but it had already become relatively stodgy and too
comfortable for people who had been there a long time. To affect change, he
implemented several strategic initiatives, the most significant of which was a
performance matrix. The top 10-15% of employees were rewarded, the middle
70% were compensated adequately, and the remaining 10-15% were targeted for
elimination. Everybody shaped up because nobody wanted to be at the bottom.
Most people agree that GE improved significantly during Jack Welch’s tenure.
Employee-ownership
This brings up the question of ownership. In a capitalistic society it's important for
people at all levels to share in the growth and success of the enterprise. Indeed,
this has given rise to the spread of employee ownership plans, stock options and
other forms of participative involvement. And there’s another element of
Capitalism that eventually kicks in – if you own enough stock, you don’t have to
work.