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.