Pick Your Own Pay - Notes from a CEO Who's Doing it.... - www.hrcapitalist.com - July 16, 2008
Very Interesting article on an equity "cafeteria style" plabn
Pick Your Own Pay - Notes from a CEO Who's Doing it....
Last
week we profiled an interesting article over at the Wall Street Journal
outlining the cafeteria style compensation plan of Skyline
Construction, which allows eligible employees to pick their own salaries, within a specified range. The catch: Choosing a lower salary means a shot at a larger bonus.
It's like Vegas without the free drinks. And a whole lot more accountability.
We had some good dialog in the comments and were fortunate enough to
have the CEO of Skyline, David Hayes, check in with clarification on
some points the article didn't have a chance to make, as well as more
detail in his philosophy on rolling it out. Here are his notes (with
his permission) for the readers of the HR Capitalist:
David
- thanks for checking in. Good to hear more depth about your program,
and while we can all extrapolate how it would work in our environments,
you're living it and to be commended for taking chances with how you
motivate and compensate!
Hope you have a chance to check in often and join the discussion!
I think David is right (I happen to know this company, but this is really a more general comment). What we have found in our research over 27 years is that as important as pay is for performance, it is culture that really counts. In fact, pay can be viewed as a kind of artifact of culture more than a cause of it. If you have the kind of culture in which people have the ability and the information (as they do at Skyline) to take responsbility for their own work decisions, and they work in teams to do it, "free riding" is a hard sell. Peer pressure, as David says, is a powerful motivator. Classicail ecnomists (and most pay consultants) take a dfifferent view. They say "het, if I can shirk (they love that word) and get paid the same, why not? After all, I measure each step I take at work based on how many extra dollars I make."
Right. Try this experiment -- ask them , in an unguarded moment, if they go to work every day and decide how to work based on a rational calculation of how many dollars x amount of effort will yield. No, they will tell you, for me it's really about the inherent nature of the work -- for the unwashed others out there, it's just money. Sorry, the research is compelling that this just isn't so.
That doesn't mean Skyline's pay system would work for everyone because every culture is different and what seems fair and appropriate to people will vary from one company to another. But pay people in a way they believe is fair (an ESOP is one effective way to do that, research shows), treat them like they really matter, and a lot of problems get solved.
I tend to agree with Corey's idea that culture is more important than device. Let's here from other ECE members on this topic.
Also:
How many ECE members have, or have considered, a "pick your own equity" plan?
Why are you for or against them?
If you are a Comp Consultant, how many plans like this have you helped put in place?
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"Hello Everyone,
As CEO of Skyline, I’d like to comment on all of the above (see comments and original post).
First, let me say that no comp plan is the perfect solution. I
worked at a Fortune 500 firm for 12 years and had some horrible
experiences related to compensation, which ultimately made me leave. At
that particular firm, base salary ranges were the same for each job
category and all bonus was discretionary. Even after producing more
profit and sales than any of my coworkers in the same job category, I
was rewarded with a bonus slightly above others and less then some
senior people who had more tenure. I got the "oh junior, your day will
come, relax." Talk about a buzz kill!
When I became CEO of Skyline, I knew I could not satisfy all of the
people all of the time. Instead, I needed to make a cultural commitment
that I believed in passionately. Being an interior construction firm in
San Francisco is not unique. There's little barrier to entry and lots
of competition. The quest became, "how do I develop a unique culture to
create a superior client experience and have highly motivated people
pushing that commitment"?
I decided on the following structure:
Implement, watch, learn, adjust and implement again. After 40 months, we’re in the “implement again” stage.
On the compensation plan: many of your points are right on the mark.
Candidly, the peer pressure to comply with the group is there, is on
purpose, and is working. With so many competitors in our marketplace,
employees who don’t like it have many excellent firms to go work for
who will pay them the same salary. However, the statement about higher
salary selection employees being coasters or weak, is unfair. Those
choices are usually made by employees who just purchased a new home,
started a family, have a spouse that is not working, had some personal
health challenges that impacted their time at work, etc. We have had
employees who made the high salary choice who did "coast" and guess
what? The peer pressure to perform was brutal and they left for a
competitor. It has happened twice in the last 3 years. That's okay by
us. We are who we are and not for everyone.
Finally, as a former college athlete who played on a team, this is
anything but "anti team". In fact, it is pro team. A team consists of
individuals committed to the same goal, using their individual talents
to contribute to the team’s success. Great teams are not always the
best players but the players who bring out the best in each person,
thus making the power of many better then the power of each individual.
I hope this helps, and I really appreciate all the intelligent discussion around this topic!"