Inarticulate ramblings of a management consultant

the day to day experiences of a consultant operating in weird and wonderful client situations

Compensation structures – still stuck in the dark ages

As I get older and the needs of my family change, the inherent inefficiency of traditional reward structures becomes more and more obvious. What I mean simply is that the requirements I had of both salary and benefits when I was 20 or 30 are no longer relevant to me, indeed more importantly than their practical purpose is the reduced perceived value that they offer.

Much has been written and spoken about perceived value in the last 10 years in particular in relation to the comparatively new science of behavioural economics. The concept is simple, what a senior manager in say, Egypt, might value most highly in his / her compensation structure, in this case access to private medical cover, is fundamentally different to the value of that particular benefit in a country like the UK where public health care is readily and easily available and is largely paid for through the overall taxation scheme. The perceived value is considerably higher despite the fact that the financial value is the same.

Another example might be the value of holidays. As a crass generalisation, for an individual with children, the ability to take time off to be with the family when they too are on holiday might be perceived as exceptionally valuable. For a younger person starting out his career, holidays are potentially a distraction from the business of building a career. Once again the correct measure is not a financial one, but one of perception.

And similarly for pensions, life insurance, death in service etc.

What seems utterly extraordinary to me is this: The process of taking up a new job from the perspective of the candidate and the company is an intensely personal one, where roles and responsibilities, reporting lines, key performance indicators, career plans etc are all specifically tailored to the needs, abilities and skills of the individual, often right down to the colour of the office and the choosing of the chair (!) When it comes to compensation structures, that tailoring disappears to be replaced by the strictures of a grading and related reward structure which often provides minimal flexibility and therefore minimal perceived value. What’s more, should the individual stay with the company for a prolonged period of time, no effort appears to be made to adjust for those changing requirements.

In an era where commoditisation has almost ceased to exist in retail and where through the advent of big data mining, companies are providing a tailored experience when we actually or virtually enter a retail environment, are corporates not missing a major opportunity when it comes to providing a highly tailored approach for the needs of the individual employee? I accept that the recent statistics published by Gallop relating to exceptionally low levels of employment engagement cannot all be put at the door of reward structures, however the lack of thought with regard to the individuals need must have an impact.

Categories: Career development, Economics, human behaviour, Human Capital

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