#493  from Innovative Leader Volume 9, Number 10          October 2000

Pay Innovators Right!
 by Patricia K. Zingheim and Jay R. Schuster

Ms. Zingheim and Mr. Schuster are partners in Schuster-Zingheim and Associates, Inc. (sza@schuster-zingheim.com), a pay and rewards consulting firm located in Los Angeles (www.paypeopleright.com). This article is based on The New Pay: Linking Employee and Organizational Performance and Pay People Right! Breakthrough Reward Strategies to Create Great Companies (Jossey-Bass, San Francisco, 1996, 2000).

Business is in at least the third stage of “deals” it has offered the workforce. The advantage will go to enterprises agile enough to match the deal they provide to the talent challenges they face. To attract and retain scarce talent, companies must change their view of how people are rewarded.

The Old Deal

Entitlement--rewarding tenure rather than performance and skill growth--characterized the 1960s through the 1980s. People expected, and were often given, career employment with one company. Workers “owned” their jobs. Companies commonly had a paternalistic view. Annual pay and benefit increases were expected. People were hired to fulfill well-defined roles. It was a time of workforce stability.

A business then was better able to predict its future. Change was more gradual and easier to adapt to. Workforces were commonly protected from the realities of the business. People were told not to worry about company performance--that’s management’s responsibility. The company absorbed pay and benefit cost increases without regard for its ability to pay. The balance was clearly toward the side of the workforce--it was not win-win for both parties. The workforce got a message of “plenty,” whether this existed or not.

The New Deal

Downsizing, reengineering, rightsizing, and flattening took their toll on the old deal during the late 1980s and much of the 1990s. The new deal was a “tough love” perspective. Companies expected people to come more than halfway to acquire and apply the skills the company needed. The emphasis was on “shrinking to greatness.” Many proud workforces were decimated, and extensive loss of trust was the result. This meant insecurity, contingent employment, multiple employers, and periods of unemployment. It represented a wrenching change in how work was done and who did it. It made many people “virtual workers,” whether they were ready or not. Pay and benefit costs were cut at the expense of staffing levels. The new deal was a dramatic change from the past, and it came upon companies quickly and painfully.

The new deal thrived when more people were chasing fewer jobs. People were asked to come much of the way to ensure their employability by keeping their capabilities current and meeting company performance standards. Workers gave up ground they had gained in terms of pay and benefits. In some companies this new deal still remains, and people are expected to accept it and still add value to the business. It is often a case of win-lose--with the major loss coming on the side of the workforce. However, the new-deal company frequently comes out the loser as well, in terms of workforce trust, commitment, and interest in helping the enterprise succeed.

The Better Deal

The new deal ended when companies realized people are a source of competitive advantage. Growing, rather than shrinking, to greatness translated into more jobs chasing fewer people. Disenfranchised workforces needed attention. Talent became scarce, and not just knowledge workers, but all workers. This especially applies to potential innovators, those whose creativity will be required to advance the company. Companies realized that profitable growth and speed are business priorities and depend on attracting and retaining top talent. This made both the old and new deals obsolete. It wasn’t possible to return to a situation of entitlement because companies need continual workforce innovation. The negative new deal was impossible to sustain because talented people no longer needed to work for companies that did not highly value them.

This better workforce deal requires that companies invest and form a win-win partnership with their people. This makes innovation pay off to all parties that create business value. Companies need to rebuild trust through more open communication, sharing information and results, and being truthful about what people must do to grow and add value to the business. The enterprise and people each come half way. This deal supports mutual choice by companies and workforces--more coaching, developmental feedback, training, and nurturing. It signifies a positive workplace with a compelling future that invests in people and also provides attractive rewards. This is the win-win that is important to making a company and workforce really begin to “tick.”

Linking Rewards, Deals, and Innovation

Companies can’t will innovation--but they can make themselves attractive to the scarce people who can make gainful business creativity happen. Working where a better deal exists helps a lot--mostly because it’s win-win when people add value. Individual growth counts because innovators want to have access to the latest information to make their breakthroughs. The positive workplace is essential because innovators want co-workers and leaders to create and add value and ideas.

Companies that enjoy a stream of innovations not only celebrate and recognize business breakthroughs, but also provide a reward system that encourages the creative process. While the reward solution varies from enterprise to enterprise, we find one ingredient in the “secret sauce” is a dramatic change of focus from only pay to providing a total reward “footprint” that magnifies the relationship between people and business outcomes.

The Total Rewards Prescription

The best people work for more than pay. To facilitate business innovation, total rewards must meet people’s needs: a future they want to be part of; opportunities for individual development showing that the enterprise invests in those who create value; a positive workplace in terms of the work as well as co-workers and leaders; and, of course, total pay in terms of base pay, variable pay (cash and stock), benefits, and recognition and celebration. These total reward components are summarized in the table. How does your enterprise stack up on each component? What are your organization’s strengths, weaknesses? The reward components translate to a total reward prescription as follows:

1. Provide a compelling future, not just good jobs.

In a market where innovative talent is scarce, “good jobs” that require business creativity are frankly a dime a dozen. So what makes the difference? People want to work for super companies. They want to work for winners--companies that are successful and have a clear business direction. The best talent wants to join an enterprise with a vision and a set of values they can buy into and be proud of. They want a company with a superlative reputation and image of innovation.

People who add value to the business want to be stakeholders, not just through stock options but through a sense of partnership as well. Companies must offer such people a win-win relationship where they and the company both come out ahead. People who create sustained value can be loyal again--they just need something they are proud to commit to.

2. Provide individual growth, not just good training.

Just providing training isn’t nearly enough. Innovative people want the chance to grow and improve. They want a career with a purpose and future--this means individual career planning. Where they can go and what is required to get there are essential parts of their career plan. They don’t want the company to do it for them; rather they want an employer who will provide the tools that enable a meaningful career.

The best people want to know where they stand through coaching and performance management. This requires ongoing feedback on how they are doing and how they can improve. They like input so they can adjust and re-calibrate during the performance period. Creative people want to be better off at the end of a performance period in terms of what they know and apply.

3. Provide a positive workplace, not just a “nice place to work.”

Simply “making nice” for a workforce won’t do it. No evidence exists that becoming an “employer of preference” or one of the “best places to work in the world” will induce people to create value. Commitment doesn’t come through free lunches, T-shirts, day care, or more time off. These benefits may help but can’t do nearly what it takes to get the best people to commit to an enterprise. You must provide a workplace that shows the company is strongly people-focused. Share company success with those who add value. This, unfortunately, is more than most companies are either willing or able to do; but this is where your enterprise can gain advantage.

Innovators judge your company by leadership.  Are your leaders people they respect and want to learn from? Do colleagues make work exciting and eventful, and do they collaborate to make the business a success? How involved are people in the work and business process? Do they have a chance to work on projects where they can make a difference?  Can they influence company directions and tactics? Are communications open?  Do people have the information they need to make a difference? Are they trusted?

4. Provide total pay, not just competitive pay.

People work for much more than pay--but pay is still important. And how you structure pay is most important. Any company can match the pay of others if they are able to afford it. Simply paying people more makes your people accessible to companies that are willing to pay even more than you do. What’s necessary is to put together a total pay solution that responds to the type of talent you need--making it tough for others to merely up the ante.

An effective total pay solution uses each pay element for what it does best. Base pay does a great job of rewarding skill and career growth over time, reflecting an individual’s track record of innovation. It can match the increasing value of talent and make your company attractive to innovative people who will partner with you in their own growth.

Incentives and stock options are not just for managers and executives, but for everyone in the workforce. They help emphasize creativity, leading to business results. Prospective incentive awards give leadership the chance to communicate to the workforce what the company needs and values in terms of goal performance. Goals can relate to new products, new services, new markets, and process or operational improvements that drive the business to the next higher level. Cash incentives can also reward the financial value of innovations by sharing revenues, income, or cost savings. Stock options can be granted to people who have made innovations or who the company believes have the potential to make innovations. Retrospective awards acknowledge unplanned breakthroughs.

Recognition and celebration are important--the best people want to be recognized. People want to celebrate noteworthy achievements and feel good about successes. Benefits are also consequential, especially those that provide choices to match individual needs.

How does your enterprise stack up? Only one of ten potential “change masters” who read this article will have the grit to change pay and other rewards. But those that move forward may gain unique competitive advantage. Where do you stand, and where should your business go?

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Total Rewards

Score your organization for reward effectiveness.
Reward Component:  Score +,  =,  or  -

Individual Growth

Investment in people                           _

Development and training                    _

Performance management                  _

Career enhancement                          _

Compelling Future

Vision and values                               _

Company growth and success             _

Company image and reputation            _

Stakeholdership                                  _

Total Pay

Base pay                                           _

Variable pay, cash and stock               _

Benefits or indirect pay                        _ 

Recognition and celebration                 _

Positive Workplace

People focus                                      _

Leadership                                         _

Colleagues                                         _

Work, itself                                        _

Involvement                                        _

Trust and commitment                        _

Open communication                          _

Source: Pay People Right! (Jossey-Bass, San Francisco, 2000)