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Reason #1: Pay Can Influence Organizational Effectiveness

1/2/2013

 
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.

Research has shown that productivity is profoundly influenced by compensation.  We also have Daniel Pink’s mastery, autonomy, and purpose, of which we won’t lose sight, and yet compensation is still a critical element of collective employee effectiveness to drive the business forward.  The bottom line is: compensation affects employee behavior, and employee behavior is a leading force in whether or not an organization is effective.   
"The bottom line is: compensation affects employee  behavior, and employee behavior is a leading force in whether or not an organization is effective."   
 
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?
Carol Anderson link
1/2/2013 10:09:33 pm

In my experience, one of the barriers to joining these two disciplines is in the fact that the client is often different, so comp responds to their client, and OD responds to their client. In organizations where comp is a corporate decision, that makes it even more separate since there are really few changes that can be made to the pay program.

To me, this shouts the need for strong vision and leadership at the top of HR, being a real business partner instead of the manager of programs that seem, to the end user, confusing at best.

Mercedes link
1/2/2013 11:58:48 pm

That's a great point, Carol. Strong leadership that spans HR and directly connects with the business is a key to crossing discipline borders. It's a microcosm of silos, isn't it? And I am all for breaking down silos in HR just as much as I am across the whole of an organization.

I do think clients - whether internal or external - often end up being the same even though they may start out as a Comp client, an OD client, a Business Partner client, or a Recruiting client. Chances are, if we haven't provided them a holistic solution then that same client will be back to talk to the other functions. There's that "confusing at best" you mention.

Thanks for your comments!

Michele
1/11/2013 05:09:44 am

I'm glad I came across your blog post on LinkedIn! In my 17 year compensation career I cannot tell you how many times I've wanted to exercise the OD components and been looked at like I'm crazy. Thank goodness I'm not alone, and that perhaps there is hope anew that we can pull the compensation function out of mere "administration" (often due to its being married with benefits, which, while having strategic elements, really is more administrative).

The most immediate example I can think of is through sales compensation. Often I've found managers wanting to change the sales comp plan to drive business results. But, sales comp is really the end of a long chain of other drivers that have to also be optimized to get the most holistic results. Without the proper products "in the bag", customer and business appropriate distribution of sales staff, correct territory alignment, appropriate sales training and tools, great quota setting, and a good process to combine a roll-up and roll-down of sales budgets and expectations, the sales compensation plan cannot truly be effective. No one element works in a vacuum, but even more importantly, the best sales comp plan cannot make up for an overall poor sales structure.

Mercedes link
1/11/2013 05:35:47 am

Michele: you're not crazy! Compensation certainly has its administrative components, and so does most every other function. Yet even with the more administrative elements (e.g., job descriptions, compensation surveys, even benefits administration), how are we tying them back to the business strategy? How are we taking into consideration the whole picture to create a total value proposition while increasing the organization's return on people investment? Each one of us has the opportunity to make this a reality. And I would love to hear of your wins along the way.

Thank you for your comments.

Carol Anderson link
1/12/2013 06:20:20 am

Michele, it is really great to see this growing number of compensation folks who see the close alignment with the practice of OD, and byour example of sales comp is a good one. During my tenure as Comp Dir for a large financial institution (before I shifted to OD), I continuously was frustrated because we didn't seem to add value to the line managers developing complicated incentive plans. I always felt like there was something more we could do, and began to watch the OD team intervene with departments looking to make change (but thinking they knew how to do it). They asked really good questions that in many cases had nothing to do with the presenting problem, and allowed the clients to make their own discovery of opportunities that might have a chance to really solve the problem.

I've been in HR for 35 years, and continue to ponder the desire for a seat at the table, with the confusion about exactly what to do once they get there....I think there is a real synergy bringing Comp and OD together. Keep on pushing!

Mercedes link
1/13/2013 12:28:37 pm

Carol, I love the example of watching OD practitioners intervene and seeing how they interacted with the department managers, allowing the managers to come to their own conclusions. It motivates me that much more to empower Compensation practitioners with tools from the OD toolkit. I'm certainly not suggesting Compensation start "doing OD" as a replacement for the OD function. Yet leveraging the power of the question and approaching issues holistically as Michele suggests in her sales compensation example, are ways that Compensation professionals can add much greater value going forward.

My recommendation: we create the seat at the table, because the chair I want to sit in isn't there yet!


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