With the wild run of the prices and costs of living in recent years, more people are struggling to ensure their minimum standard of living. Unfortunately, people often oversee this situation by directly searching for a new job and not discussing their situation with leaders and managers. Conversely, companies still follow the compensation rules created in the 20th century that honor people’s equity. Leaders call these systems Grading and trust so much in them that they forget to turn to the person in front of them. And now, if a critic reads this, they will think and even say that there must be some order in the compensation model of each company to help manage more effectively the costs of people and add more value. And they may be correct, but not exactly.
While in the 20th century, the focus was on building better teams and making them operate as smoothly as possible, without any disturbances and discrepancies, now, the topic has moved from effective operating teams to delivering individually effectively.
Leaders today face more challenges to create an environment that allows individuals to be more engaged and motivated to support company success.
Personal performance and the need to be recognized as a vital contributor now move companies and organizations worldwide. With the current and new generations approaching the workplace, the focus has drastically shifted from “we” to “me.” This tendency has redefined how companies should operate if they want to keep their best employees and win with them now and in the future. The employee package, defined in the past mainly by the money the person received, has moved into a considerable and aligned package that fits the needs of the individual and their families.
Every year, companies are becoming more flexible in what they offer their employees. Perks have evolved from simple things like coffee and water in the office to complex packages covering not only a person’s experience in the office but also their experience as a whole.
In that complex system of elements, one thing has somehow remained in the past. And this one thing is the payment system. No matter what companies do or how they see their budgets. Still, many leaders want to “think about everyone.” So fixed payment schemes are implemented and supported as a need to keep “company financial balances.”
But what has happened as a change in people’s minds also needs to be adopted by the companies and leaders to win with the best talents on the market. There is a simple decision with a complex set of steps to help leaders secure their companies’ future by keeping the best skills for their business and creating a supportive and flexible environment to ensure the future will be brighter than today.
Here is a short list of what to look for as a leader if you want to compensate your best people for all the efforts they put into the work done.
Performance reviews and fixed payment increases
There is no doubt that the mantra of being transparent when you pay someone an increase is widely distributed. Leaders are widely thought to be brave and pay everyone according to what they have achieved. And many leaders do just that.
I recently had a conversation with one of our senior leaders in my company. They told me: “I will have to increase person X’s salary by more than the average percent, not because he is great, but because he maintains the same acceptable standard for the role he holds year after year.”
I said NO, and we had an exceedingly long discussion. Eventually, I convinced the senior leader not to do what they wanted initially.
Leaders often rely on employee work results to say if they deserve a small or significant increase. But unfortunately, performance reviews are the curse of the past we have to skip. Especially this part when we talked about what happened last year.
Based on what we see in a report about someone’s performance for the past period, we can only judge whether the increase from last year was right or wrong for this person.
So leaders should learn that making the wrong judgment doesn’t help them or the company to be greater than a year before.
Suppose a leader wants to pay an individual for their unique contribution. In that case, they must focus on building the fixed payment increase based on the expectations for achieving the next level of success for the individual. Everything else is just a waste of time, money, and potential.
Short-term tasks and projects and the long-term appraisal
Often, the best people in the office receive the most substantial number of tasks and work on the most critical projects. Suppose the leadership team in the company has set a traditional way of paying for success. An annual bonus for achievement calculates success as an average score from all projects and tasks assigned to the basic set of responsibilities. Highflyers and individuals contributing to essential duties move through many of them in the year. While in the past it was customary to receive a thank you letter and a bonus, these days this approach is not working and has become obsolete. Individuals today need to see their compensation for a project or a stage of a project, or just a crucial for team success task – as close as possible to the moment when the last thing asked from them was completed. The leader who wants to continue using the individual potential to achieve higher results in the future must focus on building a system with short-term payments based on achievements. With such a system, compensation flows to the individual at the right moment. It boosts internal levels of engagement toward the company and its agenda and internal motivation to continue to be active on the path to success that the company draws.
No matter how much money people can receive as an annual bonus, individuals today appreciate more short-term payments made at the right moment.
Minimum once a year
Now, I will have the anger of all people dealing with salaries and payments to the employees in the organizations who read that. But, unfortunately, with the dynamics in the world and the economic peaks and downs, coupled with fluctuating inflation, people want to see individual approaches toward their needs.
A good leader should think about what a double-digit increase made a year after the event of disturbance will bring to the person instead of two balanced changes in the salary or the other payments toward the individual made at the right moment.
Many leaders go with the first approach and lose the battle for balanced payment. This is clearly stated in the resignation feedback of more than fifty percent of the people interviewed by a sociological agency in the US back in 2022 for why they resigned.
The most common answer was not that their employer had paid them less than the market, but that when the inflation and all expenses went up, they didn’t do anything to show that they cared about them.
“Delayed compensation increase is a joke and lacks any respect toward me,” – said one of the interviewed engineers.
In other words, individual compensation must answer the fluctuating situation in the market. Valuable people and talents in the company are not ready to suffer, and they will decide to quit and wait for the leader to turn to them.
With a logical explanation of why this amount
People now have enormous resources and information in front of them. For example, going to Glassdoor or any similar website can easily give individual details about salaries and packages across the same or other industries. People do not care so much about the amount but compare it with what others have received in other companies. And leaders still make the same grumpy mistake – they have over the proposal for change in the salary or other payments and ask to be signed. And that is what makes people angry. Individuals want to be treated as unique human beings, but not the following number in the long list of resources the company and the leader must handle.
For a leader to be secure that what they have offered has the right impact on the individual, they must explain how the number was formed. Not doing that makes people indifferent to what has happened to them and demotivates them to engage with the company in the future. Although this looks like a terrible mistake made by inexperienced and experienced leaders, it dramatically impacts how individuals will threaten or think of the company.
With clear explanations and plans, what is next to come
Gone are the times when a leader has had to think only about the moment when they change the current individual payment scheme and wait to get into the same mood next year. Nowadays, leaders are expected to think ahead of the situations happening. To work with individuals and not groups mean investing time and building the next 1-3 steps with everyone as part of different scenarios. Leaders now have the complex task of evaluating risk and collaborating with it on an individual level to be sure that the company will be ready and in shape to answer the changing environment with their best people on the front line. Thinking forward in time is what individuals appreciate most. They don’t want to know what is happening now but what they can expect in the future to form their norms, beliefs, and plans for the future, with or without the leader and the company.
To sum up:
Individual payment systems are the most complex product in our timeline and at this moment. They create complexity for the leader, the company, and the individual. People’s expectations have risen so much in recent years that many leaders are still shocked by what is happening. But as with all the other things in life, an individual approach with detailed data analysis, precise planning, and transparent and ongoing communication can make this particular payment system become a norm in today’s organizations and allow companies to achieve better results in a more predictable environment, counting on every individual contribution to the highest level.
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