We have arrived at the tenth and final reason in Dr. Ed Lawler's list of ten reasons for combining and  leveraging the complementary competencies of Compensation and Organization  Development (OD) (see Lawler 1981).  Reason #10: Reward System Influence on Change  Efforts speaks more broadly of the total rewards initiatives (compensation, benefits, recognition, etc.) and how they can influence the effectiveness of organizational change efforts, both big and small.

Rather than a "Case in Point/Cut to the Chase," at this point I would like to take a step back and take into consideration these ten reasons for combining and leveraging the disciplines of Compensation and OD:
1. Pay Can Influence Organizational Effectiveness
2. Pay is an Important Cost
3. Pay is a Problem
4. Pay is Important to Individuals
5. Pay Policy and Pay Practice are Malleable
6. Pay Systems and Institutionalization
7. Pay and System-Wide Change
8. Pay is Visible and Tangible
9. Pay is a Systemic Factor
10. Reward System Influence on Change Efforts

As one might classify qualitative data by codes and themes in a research project, I see a few key themes surfacing as I review the series:

- First and foremost, pay - compensation - touches everyone in the organization.  There is little within an organization that has as far a reach or as emotional an impact as employee compensation. 

- Second, compensation is important.  It's expensive, it's meaningful, and while it may or may not be the primary motivator for certain employees, it still provides the means for living at a desired standard. 

- Finally, compensation is systemic and embedded within the relationships and connections inside an organization.  So whether the desire is to change the culture or change the organization chart, the simple act of making a change requires a review of compensation and rewards for possible implications.  At a minimum, rewards strategy should always be included in the change effort framework.

I have enjoyed entering into this conversation with you, knowing it is simply the tip of the iceberg.  Although future conversations will take different twists and turns, my point of view is deeply grounded in the importance of bringing these disciplines together to improve the dialog around increasing organization effectiveness and building the capacity to successfully address our greatest organizational challenges.  I look forward to continuing the discussion.

We are winding down our first blog series, grounded in Dr. Edward Lawler’s book, Pay and Organization Development. We have reached Reason #9: Pay is a Systemic Factor. If I were to pick a 'favorite’ of Dr. Lawler’s top 10 list, this would be it.

I am very excited about the direction Organization Development and Change is heading; that is, toward more of a complexity paradigm and post-modern networked reality, and away from a purely open system model. To me complexity and networks make more sense than simply a factor of inputs, transformations, outputs, and feedback (yes, I’m oversimplifying).

Consider there is much more to both of these, yet for now the point is: what does complexity and network theory have to do with Compensation and Organization Development (OD)?  A lot, if you ask me.  If someone half way around the world can link themselves to Kevin Bacon in six degrees or less, how much more connected are people in one singular organization or industry?  And if you change the job title, the job duties, the function one oversees, or an organization chart, you've likely affected many employees you wouldn't have even considered, including their compensation, career trajectory, and classification.

Case in Point: Employee Services happened to mention in a meeting I was in that they were working with OD and the Logistics Administration (LA) department to dramatically change the organization structure.  They wanted to increase responsibility for a certain subset of Logistics Administrators, moving them to a more customer service-oriented role.  LA wanted to create a better career path for its employees - fair enough - and had thought they found a way to do it by just shifting a few things around.  My colleague believed he had another satisfied customer; his smile suggested, "Where's the ribbon so I can tie it up in a bow?"

Cut to the Chase: Fortunately for all of us my colleague did mention the changes underway, because what they thought was a simple modification to some job descriptions and boxes on an org chart became a potential Fair Labor Standards Act (FLSA) nightmare.    What surfaced was not only that the new positions would be Non-Exempt, but the old positions should have been all along.  The job duties had previously been described as Exempt (read: inflated), and the truth was suddenly coming out since it now served them to position the new Customer Service Administrator job as 'higher level.'  I told my colleague he needed to 'untie the bow' and work through step-by-step with OD, LA, and Compensation what needed to occur to first and foremost ensure legal compliance, and simultaneously meet the business needs.  We then had to discuss the implication of the Product Administrators, a separate group seemingly unrelated yet for years had mirrored the LA group structure, pay levels, and FLSA classifications.  Pandora's box was quickly opening.

Pay is systemic.  We change one thing in an organization, even if it seems completely benign or is noneconomical, and it can change many others - from individual pay levels to titles to office space to culture.  As Lawler (1981, p. 8) states, "pay systems in organizations are closely linked to the following major aspects of organizations: superior-subordinate relationships, job design, organizational structure, organizational climate, management training and development, information and control systems, performance appraisal, and management philosophy or style."  I am guessing readers can add to this list.  In a nutshell, both Compensation and OD are well served and highly encouraged to come together to discuss change efforts at their onset so that the more complete story is told, and the fundamental issues are addressed using a planful, robust methodology that takes this complexity and network of connections into consideration.

What examples do you have that illustrate the systemic nature of pay?

We’re rounding the bend on the last of the top ten reasons to leverage the complementary competencies of Compensation and Organization Development (OD) for greater organizational effectiveness. These ten reasons, extracted from Dr. Ed Lawler’s Pay & Organization Development (Addison-Wesley, 1981), are hopefully a jumping off point for some rich dialog, both internal to organizations and external, around how these very distinct disciplines can partner to help drive the business forward.  We come to Reason #7: Pay and System-Wide Change.

That compensation initiatives are probably an organization’s strongest lever of enterprise-wide change will not come as a surprise if you’ve read my previous Musings.  I have mentioned this numerous times, in numerous ways.  Yet what may surprise you is my twist on this particular post.  OD has large-group methods that also have the ability to reach a broad audience. I agree with Dr. Lawler that, “many of the traditional interventions that organization development specialists use impact on only small groups of employees.”  Yet there are also many methods and forums used by OD practitioners to bring about successful large-scale change.

Case in Point: On one of my less-than-shining moments some moons ago, I reluctantly agreed to revamp the domestic U.S. salary structure with the request to “keep it off the managers’ desks.”  Everyone was inordinately busy and the directive from the CEO was to keep everything ‘administrative’ away from management; the project to upgrade the salary infrastructure was deemed 'administrative'.   Whether they realized it or not, I had the attention of 70% of the population: decisions we made could result in a red circle, an increase in pay, a change in exemption status, or greater or lesser opportunity to financially progress just to name a few.

Cut to the Chase: Had I known about one of these large-group methods of change at the time, I could have partnered with OD to build a rich, 'non-administrative' dialog with a large group of leaders around the U.S. about what the organization needed relative to the pay structure ("what did we hire it to do?"), what the obstacles were to being able to attract and retain talent with regard to salary, and other strategic and philosophical topics.  It might have taken two days of managers’ time on the front end (this obviously excludes what can be months of set-up behind the scenes), yet I am convinced collectively and methodically gaining their insights – and they from each other - would have saved weeks' if not months' worth of questions, confusion, and disruption on the back end. 
 
While compensation is undoubtedly one of the largest levers of organization-wide change, it is important to not lose sight of the great tools OD has to help implement these large-scale changes.  There are times when I’m guessing Compensation professionals have lost sight of the power at their fingertips.  I know on occasion I did, and I only wish I had then known about methods like Open Space and Future Search to gain the important broad-reach collective buy-in for greater success.

I wonder how familiar most Compensation professionals are with this type of 'large-group intervention'.  (I know I wasn't until I entered the Pepperdine MSOD program.)  I'm also curious as to the possibilities people can see in using some of these methods to more successfully implement broadbased compensation changes.  Thoughts?

Today we start the second half of the top ten reasons to leverage the complementary competencies of Compensation and Organization Development (OD) for greater organization effectiveness and employee empowerment.  The top ten reasons come from Dr. Ed Lawler's book, Pay & Organization Development (Addison-Wesley, 1981) - the only book I know of that speaks to the natural synergy between the two disciplines that can better move an organization forward.  Reason #6: Pay Systems & Institutionalization.

Institutionalization is a big word and can speak to many things.  In the context of this discussion, we are talking about institutionalizing - incorporating into the fabric of the organization - desired behaviors that support an organization's mission, vision, and strategy.  Compensation is a powerful lever to institutionalize behavioral change.  In fact, attempting large-scale change without assessing and potentially modifying compensation strategies can result in little to no sustainable impact and loss of precious time, dollars, and resources.

Case in point: The CEO and COO of a global, multi-billion dollar organization decided their company wasn’t working the way they wanted it to.  The Sales force was too busy selling their personal cash cows which were last year’s news; the CEO wanted to innovate and fill the pipeline with new product orders.  The throughflow from Marketing to Engineering was murky at best, completely stalled if not confrontational at worst. Creative departments rolled up to Operations while pure cost centers were borne by departments responsible for generating revenue.  The top executives wanted streamlined; they wanted agile.  So the two of them reorganized the entire company– in less than a month.

Cut to the chase:   By and large, the reorganization took place in a MSWord document with SmartArt.  Four boxes spelling out the four core competencies of the organization were big and colorful across the page.  It looked great!  Simple, clean, easy to understand.  Yet when it was rolled out only a month after its inception, it wasn’t surprising to hear that nothing had really changed other than some departments changing cost center codes and some new supervisors put in place. Processes didn’t change and, more importantly, neither did behaviors because what had been institutionalized through culture, rewards, and time was not about to change overnight.  While there were unfortunately a number of things missing from this scenario, from the need for greater study of the core challenges to much broader participation by the executive team and beyond, one of the core reasons behaviors didn’t change is because the performance objectives (that were also tied to rewards) were not modified to align with the new organization structure: rewards were still pointing to the past.

While this was an example of (a very expensive) missed opportunity, I'd like to ask you to share an example of where behaviors were successfully institutionalized through performance & rewards.  What made the difference?  To what specifically do you attribute the greatest success?

We continue our series on the top ten reasons to join the efforts of Compensation and Organization Development (OD) for greater organization effectiveness.  I am not necessarily referencing a change in organization chart to have both disciplines report to the same manager (although I understand there have been a handful of cases where that has happened).  Rather, Compensation and OD have complementary competencies that, when leveraged together, enable greater, more successfully adopted large-scale change to help move an organization forward.  I am unpacking the top ten reasons Dr. Ed Lawler provided in his seminal work on the subject, Pay & Organization Development (Addison-Wesley, 1981).  Reason #5: Pay Policy & Pay Practice are Malleable.

According to Merriam-Webster, one of the definitions of malleable - best for this particular context of Compensation & OD synergy - is "having a capacity for adaptive change." Compensation strategies, design elements, pay practices, programs, and processes have nearly endless combinations to adapt to the business context - albeit constrained to some degree by legal and financial concerns.  That may be hard to hear given the constraints and given the, "that's how we've always done it" corner into which we sometimes paint ourselves.  Yet the truth is that, by and large, design elements within compensation initiatives can take many different forms.

Case in point:  A large computer entertainment organization had found a great stride in its business strategy, customer loyalty, and value proposition to shareholders and employees alike.  It was a very successful organization.  One of the reasons for its success was taking full advantage of rewards initiatives to help steer the rudder in the direction the company wanted to go.  Each year, key stakeholders would meet with HR, OD, and Compensation in a facilitated dialog to discuss The Next Big Thing (TNBT).  While there were both long- and mid-term plans charting the course, TNBT would help guide the next twelve months resulting in the development of healthy performance goals and custom rewards programs.

Cut to the chase: Each year, it was crystal clear where the emphasis had been placed.  The organization was able to run analytics to show the gains in margin, cost management, new product offerings, inventory reduction - wherever leadership had pointed TNBT.  They used the malleability of rewards programs in concert with getting the right people in the room to facilitate healthy dialog, to expertly steer the ship and its crew to their desired destination.  And because OD now knew the future direction toward which behaviors would be pointed, they could craft their efforts to complement, rather than conflict with, the business strategy.

How are you taking advantage of the malleability of rewards and the partnership with OD to help guide your organization in its desired direction?

We are in the midst of a series that looks at the ten primary reasons for filling the space between the disciplines of Compensation and Organization Development for greater organizational effectiveness and employee empowerment.  The list of ten reasons comes from Dr. Ed Lawler's seminal work on the subject, Pay and Organization Development (Addison-Wesley, 1981).  We come to reason #4: Pay is Important to Individuals.

As most of us know, there continues to be much-heated debate as to whether pay really motivates people, or whether it is solely a demotivator if the compensation levels are off.  In the oft-quoted Daniel Pink's Drive, we are told that knowledge workers specifically are motivated by mastery, autonomy, and purpose.  While I am oversimplifying Dan's message, I think we are experiencing another both/and paradigm where people are motivated by intrinsic needs and extrinsic financial reward, whether manual labor workers or C-suite executives.  The extrinsic financial reward allows the individual to further meet certain intrinsic needs (e.g., one desires for their children to be safe and the bonus allows the family to buy a sturdy mini-van to protect them on the road).

Case in point:  Rewind just a few weeks back to New Year's Eve  at 11:07 p.m.  I have just arrived back home from a trip to the veterinarian emergency room with my Pug, Oliver.  Not three hours prior I felt the sofa I was sitting on vibrate.  Subtle, yet enough to catch my attention.  Sam, Oliver's brother, was on my left and Oliver was on my right.  I put my hands on both of them, and sure enough Oliver's little body was shaking with every exhale.  This was out of character and pointed to something being off.  This was not Oliver's first trip to the E.R., and we have never walked out of there for less than US$500.  It was closer to US$2,000 for the time we found out he was fatally allergic to bees.

Cut to the chase: I love children, yet my husband and I don't have any of our own.  Sam & Oliver have become our surrogates. And, as parents would do for their sick children, we have done what was necessary to cure our dogs of - or at least mitigate symptoms of - their ongoing ailments.  As ironic as it seems given my background in Compensation, money has been less important to me than other more intrinsic factors.  I personally see money less as a signal of importance or self-worth and rather more as provision: provision for our choice of lifestyle, including very expensive healthcare for our dogs.  To that end, while I am not predominantly motivated by extrinsic financial rewards, compensation is still very important to me and I can articulate why.  I want to work hard and get paid fairly for the value I provide so that I can afford the things that are priorities in my life.

How is compensation explicitly important to you?

(p.s. For those of you who are wondering, Oliver will be okay.  His poor little back is just getting old with the rest of him.)

We continue our series on the ten primary reasons for integrating the knowledge and resources of Compensation and Organization Development (OD) for greater organizational effectiveness, originally provided by Dr. Ed Lawler in his book, Pay and Organization Development (Addison-Wesley, 1981).   We find ourselves at reason #3: Pay is a Problem.

This is another one of those "Duh" moments where we could all check the box and go on about our day.  But before you pick up your coffee mug and head down the hall, consider the following.  If you've been reading this series thus far, you've already seen the power of asking the right questions to get to the best solution for the particular issue and context.  With that said,  as we scan our environments we can find a lot that is 'wrong' with our organizations and start to believe money has little to do with the bigger picture.  Rather, we more often have a "both/and" situation where there is something larger at play, and the compensation is off.  Whether that means pay levels are less than competitive, or whether the mix of fixed and variable pay is not helping influence behaviors in the desired direction, pay can and does create very real issues. So as we learn to more deeply explore the heart of the matter, consider we may be operating in a both/and paradigm.

Case in point: An MRO (maintenance, repair & overhaul) organization had Service Representatives located in nearly one hundred countries around the world.  Turnover in this talent pool had doubled within the last 24 months and the organization's leader was convinced it was a pay issue.  She asked to do a market study to justify increasing pay for all of the Service Reps to the market 50th percentile.  As the process of discovery began, it came out that in fact many of the employees were leaving because they did not see a career path.  They saw their service roles as dead-ends and felt they could grow more at competitor organizations. 

Cut to the chase: Had we stopped there, we would have addressed the career path and would probably have met with some success.  However, because of the level of turnover and the additional data we obtained through interviews and town halls, we decided it best to simultaneously pursue a market study.  In fact, the current compensation in several countries was much lower than the competitive market.  In a massive joint effort between the business, Compensation, OD, and HR, we developed a new career path program and targeted increases to be provided incrementally over a defined period of time, resulting in dramatically reduced turnover which in turn increased employee engagement and loyalty.

How well does your organization operate in the 'both/and' paradigm of Compensation and OD or beyond?

As we continue our dialog on reasons for Compensation and Organization Development (OD) to join efforts, stemmed from Dr. Edward Lawler's Pay and Organization Development (Addison-Wesley, 1981), we move to Reason #2: Pay is an Important Cost.

One WorldatWork study indicates that employee compensation can represent between 20-50% of the cost of doing business. More specifically, compensation costs can comprise upwards of 70% of total operating costs. Needless to say, numbers like these have management's attention and for good reason.

Case in point: The VP of Engineering for a computer electronics organization asked me to meet with him to create a new incentive plan for the engineers.  There were multiple competing deadlines and he needed to motivate them to meet every last one. The budget was an additional $2 Million to come out of the company's profits. Had I only had my Compensation hat on, I would have been tempted to ask a more narrow set of questions surrounding what we were attempting to incite, how often there would be payouts, how this would overlap with their existing bonus plan, and what this would do for their total compensation as compared to other departments. All good, necessary lines of questioning yet wouldn't have gotten us to the best solution.  Because I was also able to think from a broader, behavioral change perspective, I asked questions about the deadlines themselves. Who set them? How were they set? Were they realistic? Was this way of working best for the business and for its people?

Cut to the chase: Engineering was at the mercy of the Program Management Office, and the engineers were already working to their fullest capacity. In most cases, they were working inefficiently or ineffectively, letting QA pick up the quality issues they knew were slipping through the cracks. Had we created an incentive plan, we would have been inciting even more of the inefficient and ineffective behavior. By simply asking some insightful questions, the VP of Engineering was able to come to his own conclusion (I love it when that happens!) that the incentive plan was not the way to go, and rather he was going to sit down with the head of Program Management to work out a better way of delivering quality products within a realistic timeline: a better solution for the long-term health of the organization and its employees.

This could have easily been a two-million dollar mistake with no ROI for the organization.  The cost of compensation is too important not to ask the 'two-million dollar' questions. Some of the questions may only be ten thousand dollar questions, yet some may be twenty-million dollar questions or more.

What are some of your ‘fill-in-the-blank’ dollar questions that have helped your organizations find the right solution while considering the high cost of compensation?

As indicated in my inaugural post, I am taking the next number of weeks to expand upon the ten primary reasons why Compensation and Organization Development (OD) should be linked for most, if not all, organizational change efforts. These ten reasons come from Dr. Edward Lawler’s seminal work on the subject, Pay and Organization Development (Addison-Wesley, 1981).  Reason #1 to join Compensation and OD efforts is because Pay Can Influence Organizational Effectiveness.

I could stop there, on the count of three we all could say “Duh”, and I could spend the next hour doing something else.  Yet if it were that obvious, I would think there would be more hard evidence as to organizational effectiveness through the use of leveraging Compensation in OD efforts and vice versa.  I know it is happening, including a handful of organizations that have actually blended Compensation and OD into one department, yet the opportunity to increase the level of consistency at which these competencies are integrated is significant.

 
Case in point: A large high-tech firm was suffering from scattered customer support and an array of customer service styles that left clients scratching their heads.  After stakeholder interviews and focus groups, it was decided that a Customer Service training program made sense to ensure consistency in customer care.  OD set out with the management team to bring the program to life, including defining what customer service meant to this particular organization.  A solid approach, no doubt.  However, a few short weeks after the training had concluded, new customer complaints began to roll in.  And fights were breaking out between Program Managers and Client Managers, and Client Managers and Customer Service Reps.  

Cut to the chase: Nothing else had changed besides adding a Customer Service training program.  Objectives that were tied to bonuses remained the same, job descriptions had not been altered to reflect the heavier emphasis on customer care, and old habits proved once again to die hard for most of the employees involved.  Had Compensation been a part of the dialog, the solution could have incorporated the full suite of motivations to align behaviors with the direction the organization wanted to go.

Business productivity, effectiveness, and the ability to become increasingly agile become more viable when the power of extrinsic and intrinsic motivation is harnessed through a joint effort of critical competencies, starting with filling the space between Compensation and OD. 

How do you see Compensation and Organization Development efforts linking to achieve greater organizational effectiveness?

The space in between Compensation and Organization Development is brimming with possibility.  This is the space where Compensation expands beyond technical competence into the more behavioral endeavors to balance intrinsic and extrinsic motivations, and Organization Development recognizes and leverages the power of compensation to successfully effect large-scale culture change.  Yet while everyone I have talked to on the subject sees the need to bring these complementary competencies together to better socialize and institutionalize organizational change, very few seem to be intentionally and proactively integrating these resources.

Organization Development (OD) practitioners need the discipline of Compensation to reinforce the change they help effect through the power of extrinsic motivation and rewards.  Compensation practitioners need the discipline of OD to help create the space for critical interactions and facilitate the dialog to increase the chances of acceptance, socialization, and success of small- and large-scale rewards initiatives.  While I know the synergy occurs, by and large it seems neither Compensation nor OD ‘camps’ leverage each other effectively on a consistent basis.  Even broader, most executives don’t recognize the need: they wouldn’t know to use the semantics of "filling the space between Compensation and OD” to make their business more effective.  
 
Dr. Edward Lawler is Distinguished Professor of Business at the University of Southern California, Marshall School of Business, and Managing Director for the Center for Effective Organizations, and has been considered one of the top management gurus and workplace visionaries of our time.  He is unique in that his background and experience cross the boundaries of both Compensation and OD, including authoring the only book I am aware of that speaks specifically to these two very different yet complementary disciplines.  In his seminal work on the subject, Pay and Organization Development (Addison-Wesley, 1981), Dr. Lawler lists ten primary reasons to link Compensation and OD.  The reasons for linking the two disciplines are as true today as they were over thirty years ago:

- Pay can influence organizational effectiveness
- Pay is an important cost
- Pay is a problem
- Pay is important to individuals
- Pay policy and pay practice are malleable
- Pay systems and institutionalization
- Pay and system-wide change
- Pay is visible and tangible
- Pay is a systemic factor
- Reward system influence on change efforts
 
I had the opportunity to sit with both Dr. Lawler and Dr. Gerald Ledford at the Center for Effective Organizations a few weeks ago to talk about more proactively filling this space between the two disciplines.  On the heels of that discussion, I am motivated to spend the next number of weeks expanding upon each of the ten reasons, nestled in examples of filling the space (or missed opportunities) to more dramatically move the organization forward .  I look forward to our discussion, and encourage you to comment on success stories where you have experienced the power of leveraging both disciplines for greater organizational success.