What is compensation compensating for?

The financial crisis triggered an important and often impassioned debate over compensation, punctuated with even violent protest. Do we, though, clearly see what lies behind compensation and what compensation means about the relation between individuals and their company?

Drop in engagement and satisfaction at work
Surveys indicate a drop in engagement and a growing dissatisfaction at work. This trend dates back at least twenty years. According to Towers Perrin, only 11% to 23% of employees felt engaged at work in 2004 in the largest Western European countries. In 2001, an Ifop-Gallup survey had to resort to a new concept – "active disengagement" – in order to classify the 28% of the French who may go as far as to act against their company’s interests. According to the Conference Board, the percentage of Americans who declared themselves satisfied at work has gone from 61% in 1987 to under 50% in 2007. The percentage of American executives who say they are excited about their job has fallen from 65% to 55% in eight years.

Trying to compensate for the hardly compensable
What must an organization do when it can not produce the engagement it needs? It must compensate by purchasing engagement, through extra-incentives such as bonuses and perks of all sorts. The going rate then rises with the scarcity of capabilities. Is the crux of the problem in the amount thus reached, in its potentially public funding, or in the cause? The cause is the company’s inability to generate the engagement and loyalty it needs without top-up incentives. The moralizing criticism is currently fuelled by the distribution of such incentives in poorly performing companies, sometimes in the very units responsible for corporate losses. But this criticism further conceals the real issue. The incentives in question were designed not as reward for past performance, but to procure future engagement. Such incentives were not the retrospective expression of gratitude, but the price settled to secure prospective attachment.

Poor social contract
The social contract is the unwritten but compelling reciprocal commitment between the firm and the individual. Under the old social contract, individuals provided loyalty and engagement and in return the corporation protected their job. This contract disappeared with the pressure surge of hyper-competition. Yet, companies require a level of engagement that goes well beyond just fulfilling the rules. Rule fulfillment is less and less sufficient to confront the increasingly complex problems faced at all company levels. Hence the slogans on collective mobilization, identifying with the company's mission, and the importance of a shared vision. Yet, when things go wrong, one is invited to go share elsewhere.

A substitute social contract has then emerged: performance for employability. The individual commits to developing or implementing high performance strategies, and in return the corporation maintains their employability on the job market by developing their skills. This is often a poor social contract, so contributing to disengagement. Its main weakness is the inability of companies to maintain employability due to management roles that are too disconnected from people development. Extra-incentives have a twofold objective that they imperfectly fulfil: on a day-to-day basis, to buy the engagement that the organization does not intrinsically generate; over time, to make up – “compensate” – for a poor substitute social contract.

Tackling the real issue
In a nutshell, the problem is the contradiction between the organization’s growing need for the engagement of its members, and its frequent incapacity to obtain such engagement without over-promising. How can a company produce, in a sustainable way, through its very operations and organization, the engagement it needs?

Firstly, by keeping a firm hand on its growth trajectory.It is elusive to decree growth. But to be led by growth is hardly preferable. The more growth is uncontrolled, the greater the risk of ups and downs.

Secondly, by developing productivity as one of the most sustainable protections against competition. The issue is not so much individual productivity. The individual is often the bottleneck of productivity improvement, having already been put under maximum tension through the progress of flexibility and the elimination of dead times. The new front is collective productivity, i.e. cooperation. This requires going beyond all the incentive schemes based on individual performance metrics. Cooperation, one of the most valuable behaviors, cannot be measured.

Thirdly, by transforming the role of management. When managers are distanced from operations by complicated and over-stratified structures, when they spend 40% of their time writing reports, and then 30% in coordination meetings, they cannot perform their real work, notably developing people. Management has become abstract, and abstracted from its real job. Management must be provided with the means to do its concrete work: direct knowledge of operations rather than the surface of KPI-monitoring to which it is confined; real power rather than virtual or dotted-line org charts; and, instead of the sophisticated gloss over "leadership styles", a leadership rooted in incarnated values.

Copyright: Yves Morieux, 2009