How Will We Pay With Open Salaries and No Performance Reviews?

© HitToon.com - Fotolia.com
© HitToon.com - Fotolia.com

There are a number of movements afoot in the world of work that promise to impact the way we pay people. Two in particular may well converge to provide the final straw that breaks the back of merit pay.

Let’s begin with Exhibit 1: The “Open Salaries” Movement.

Pay transparency is coming. While it is unlikely that we will reach a point where every organization opens up all compensation information for every employee, I believe that the momentum and spirit behind the pay transparency movement will lead many employers to eventually embrace it, drawing back the curtain to reveal the details of their pay programs and practices.

Pay transparency will drive changes

This may or may not produce all the “benefits” that the movement’s proponents claim. “Open” pay won’t automatically be more “fair” because fairness is a subjective, complicated and highly personal thing, ultimately a slave to our collective inability to objectively gauge our own contributions.

Transparency will, however, change the way compensation is designed and pay decisions are made. As with any change, there will be both intended and unintended consequences.

Will more openness cause managers to be more cautious and risk-averse in their pay decisions? I’ve had more than one public sector compensation specialist — a pay pro already working in the world of open salaries — suggest that transparent systems drive managers to pay everyone the same, avoiding differentiation that favors high performers/high potentials because those decisions can be hard to explain and defend.

Enter Exhibit 2: The “Blowing Up Performance Appraisal” Movement.

Pay increases without performance reviews

Adobe has been in the news lately, the most recent of some prominent organizations that have decided to ditch performance appraisals in favor of a more forward-looking process featuring feedback and coaching over look-back assessments. As few organizations believe their performance management process is working ideally, many eyes are on these pioneers to see what lessons emerge from their experiences.

Pay-for-performance in organizations that have elected to kill performance ratings is necessarily different. Per the recent interview with the company’s Head of Rewards over at the Compensation Cafe, Adobe still allocates merit pay budgets to its managers but does not provide a formal matrix or set of salary increase guidelines to them. Managers are accountable for, but can use their discretion in, spending those allocated merit funds well.

Article Continues Below

You see where I’m going with this, right?

How long will merit pay last in a world where we’re struggling to accurately appraise employee performance — to the point where we increasingly ready to chuck the whole effort — and where salaries/salary increases are out in the open? Not very long, I’ll wager.

What will we do instead?

Looking at the crystal ball

Strictly market-based wages with “hot skill” premiums as appropriate? More emphasis on variable pay plans designed to reward specific, pre-determined individual or group metrics? Will recognition and non-cash rewards step into the void to provide the necessary differentiation for key talent?

What does your crystal ball say?

This was originally published on Ann Bares’ Compensation Force blog.

Ann Bares is the Managing Partner of Altura Consulting Group. She has over 20 years of experience consulting in compensation and performance management and has worked with a variety of organizations in auditing, designing and implementing executive compensation plans, base salary structures, variable and incentive compensation programs, sales compensation programs, and performance management systems.

Her clients have included public and privately held businesses, both for-profit and not-for-profit organizations, early stage entrepreneurial organizations and larger established companies. Ann also teaches at the University of Minnesota and Concordia University.

Contact her at abares@alturaconsultinggroup.com.

Topics

2 Comments on “How Will We Pay With Open Salaries and No Performance Reviews?

  1. I agree with Ann that pay transparency is coming. For those who disagree, the Paycheck Fairness Act had then Senator Clinton as a sponsor. I doubt if she is the next President that the issue will be forgotten.

    Consider what might unfold once employees know how much their co-workers are paid. Will it be possible for managers to explain why one employee is paid more than another. Claims of pay for performance would be difficult to defend when older workers commonly are paid more than young workers.

    In that environment who is likely to be dissatisfied — the high performers who know they are much more valuable. So how do we satisfy them? I’m not sure.

  2. I as well strongly agree, that pay transparency is not only a trend, but actually part of the near future. But I#m not at all afraid, that high performers will have to suffer. The key questions is whether this high performance is actually supporting the common goals (more than others can support them) if so co-workers will hardly have a chance to complain. Prerequisite is full transpacency not only on paychecks.
    The next step then might be to introduce performance measurements that are obtained by the employees themselves, e.g. a system where everyone can worship anyone else by assigning bonus points to that person (for good reason). Who ever earns most points get’s the biggest share of the merrit funding. As simple as that.
    This surely need openness for discussions and an appropriate amount of trust….

Leave a Comment

Your email address will not be published. Required fields are marked *