Why determining pay should be an act of leadership as opposed to an act of engineering
In his new book Dr Jonathan Trevor, Co-Director of the Centre for International Human Resource Management at Cambridge Judge Business School, examines, through case studies, the global and local approaches to the management of pay.
Can Pay Be Strategic? A Critical Exploration of the Practices of Leading Companies is published by Palgrave Macmillan.
Dr Trevor told the Cambridge Judge Business School podcast series that top-down pay structures in today’s multinational companies simply don’t work:
“The issue is about the manageability of pay systems, forget the theory, do they work in practice and often here there is a big issue in how we implement and craft these policies and strategies. In an increasingly global world what we are witnessing with the multinational companies, who were the subject of the research, are an increasing centralisation of decision making. That means somebody in Chicago is making decisions about the pay arrangements of somebody in Cheltenham and that raises the issues of whether these systems are fit for purpose, and I think they are not.”
He went on to say that there was a ‘disconnect’ between the two very different approaches to pay and both led to different outcomes for people and profitability:
“You can identify a number of common themes across all of the companies and the different approaches. They can be classified into two; those who centrally determine pay at the corporate headquarters and those who devolve it to line managers. The outcomes are very different. Despite the fact that they all embrace performance based pay and competition between employees and encouraging commitment and loyalty to the managerial agenda of the corporation in the interest of the share-holder.
“The more centralised pay determination, the more disconnected it is from the point of implementation, and its interaction to the customer. This is where it most seemingly goes wrong. The dysfunction is profound, and they are getting their approach wrong, they are demotivating and alienating their employees. This is to the detriment of the customer and the business overall.”
The systems approach to pay determination has failed us argues Dr Trevor, and new approaches are needed:
“Organisations are inherently political with multiple stakeholders. What’s interesting is that in cases where pay determination is centralised you have one view over-riding the others and that doesn’t work very well.
“Pluralism accepts that there are divergent views and interests and seeks to reconcile them, in a collaborative manner. It is prescriptive with senior managers over-riding the views of others but is doesn’t work when you come to manage scale and complexity and large complex multi-nationals operating in a fast pace environment. Determining pay should be an act of leadership as opposed to an act of engineering. If you want to take employees with you on a journey towards the corporate goals you have to involve all stakeholders sensitively instead of pressing a button at headquarters and expecting implementation.”
If you want to motivate your organisation says Dr Trevor, you have to get the balance of relationships right:
“The reason people work hard isn’t about pay. It’s about the quality of the relationship with their immediate boss. It’s not about self-interest, people work hard because they identify with the missions and the values, and they want to work towards those ends.
“The old approaches to pay that are the systems based, the strategic approach to pay is a straitjacket for talent not an enabler or empower. We need to move towards liberating our talent from the yoke of the constraints of performance, we need to become a bit old school and get back to managing people well on a day-to-day basis and creating meaning in peoples work, and not simply reward them by some once-a-year bonus.”