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.
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.
"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." | With this level of impact, every dollar being poured into employee compensation needs to be able to show a healthy return on investment. The success or failure of a reward initiative could make or break an organization's financials. Therefore, rewards initiatives must be done right and done right the first time - meaning successful discovery, planning, design, communication, adoption, and institutionalization of desired behaviors. To that end, partners in Organization Development are equipped with the skill sets to facilitate deep discovery, recognize rewards as an element in a larger strategy design (e.g., Galbraith's STAR model), and understand culture change. |
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?
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?
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