This is a guest contribution by Sven Franke for our whitepaper "Pay for Performance 2.0". The entire whitepaper is available for download here.
Anyone thinking of New Work shouldn't put a stop sign in front of the topic of remuneration, but must also discuss New Pay aspects.
The world of work is changing faster and faster. The drivers of this change are globalization, digitization and technologization and, last but not least, an increasing diversity of society. Social changes in particular lead to different or new customer expectations. To meet these expectations, organizations must increasingly change. It is becoming increasingly clear that companies that are organized on the basis of the classic organizational structure are no longer able to find answers to these changes and expectations quickly enough.
On the basis of the discussion about New Work or Work 4.0, more and more companies are trying to find an answer to the challenges ahead. The realization grows that you have to question everything you know. This applies particularly to the topics of leadership and power, because the new key factors for success are participation, collaboration and cooperation.
Social developments are also increasingly challenging for companies. Let us just mention the example of the individualization of society. For decades we were used to the fact that a strong “We” is the opposite of the self-centeredness of individualization. What we are now increasingly discovering is that it is rather an “as well” and no longer a contradiction. And thoughts about New Work are increasingly promoting this perception.
More and more companies want the lateral thinker who also places and implements his ideas powerfully with a view of the big picture. Certainly one could give further examples at this point that prove that we are leaving the world of right and wrong more and more and it makes more sense to find solutions that enable both. What does all this indicate for remuneration?
Future-oriented remuneration or new pay
It means that, above all, future-oriented remuneration takes all of these aspects into account. For companies, the challenge arises to develop a coherent model for their own organization. We (Stefanie Hornung, Nadine Nobile and I) summarize all these efforts under the term “New Pay”, which we created more than a year ago in a joint discussion. But what does that mean in concrete terms for the area of remuneration? To find out more, we started a blog parade in autumn 2017. How much we hit the nerve of the times became apparent very quickly. Within six weeks, 50 authors contributed over 55 articles. What was exciting for us was the diverse views on the value dimensions of the new salary determination. They ranged from personally dealing with one's own salary to very individual regulations in organizations.
What is New Pay about?
The content covered, among other things, agile goal-setting systems, the move away from bonus payments, fair wages, transparency, non-monetary forms of remuneration such as time, meaning and further training, fair distribution, the tabooing of falling wages and the connection between pay and power. You can see from these examples that the topic is more complex than you might think at first glance. Despite the variety of topics, some focal points emerged: In addition to the preference shift from salary to more free time and self-determination, this included in particular the critical reflection of so-called performance-based remuneration models and the demand for more transparency on the topic of remuneration. Bonuses, incentives and performance-based remuneration, in the way that they are practiced today in a variety of ways, therefore seldom contribute to the company's success.
The incentives are too often designed according to the usual way and offer little room for agile adjustments. Certainly one could discuss the topic of bonuses and target agreements even longer and more extravagantly at this point. But I would like to return to the overall view of the subject of remuneration. Payment is, and some companies occasionally forget that, a tool of cultural work and a signal for employees about what is rewarded in the organization and what is not. Is lateral thinking and entrepreneurial action rewarded in your organization? Or is it rather the attendance?
The most important aspects of New Pay
Now let's take a look at New Pay as a whole. In the last few months we have worked out the important aspects from our point of view from our blog parade and the various interviews for our book New Pay - Alternative Work and Wage Models:
- Participation: Employees help shape the salary setting model
- New understanding of performance: alternative incentives replace rigid bonuses
- Salary models independent of hierarchy: leadership is reassessed
- Self-determination: you can have a say in your own salary
- Salary transparency: open processes and / or salary totals
- Fairness: Organization defines for itself what “fair remuneration” means
- Time is money: free time and flexibility are part of the remuneration
- Failure as an option: the salary model is permanently beta and open to change
New-Pay practical examples
Eye-level model at Elobau
Elobau is a family-run foundation company with 950 employees worldwide that produces sensors for mechanical engineering and vehicle systems for the commercial vehicle industry. The company's headquarter is in Leutkirch im Allgäu. Bad values in the employee survey led to rethinking the salary model in production. At the instigation of the management, an agile project was set up to work out a new solution with the employees. In various teams of 56 employees from all hierarchy levels, hierarchy-free work was initially practiced.
In the further process, in which a core team of 14 people played the leading role, the aim was to use design thinking and prototyping to obtain ongoing feedback and develop consensus-based proposals. The new remuneration system developed in this way was approved at Elobau in early 2017 with more than 96 percent approval rate. Core elements are the basic salary, a FWC component (for each other, with each other, customer-oriented), a bonus for quality and delivery reliability and an annual bonus.
Deutsche Bahn election model at the 2016 collective wage agreement
There is no need to introduce Deutsche Bahn in detail. Just this much: the transport company has 320,000 employees worldwide. In Germany alone, Deutsche Bahn employs 198,000 people, and the number is rising. In preparation for the 2016 collective wage bargaining round, the Railway and Transport Union (EVG), which sees itself as a hands-on union, asked its members what they expected of the 2016 collective wage agreement. As a result, no uniform picture emerged. In order not to disappoint some of the members, one was forced to break new ground in collective bargaining and to break away from old beliefs. The result was an electoral model that was unique at the time. Each employee was given the opportunity to choose from 3 options:
Variant 1: wage increase 2.62% or
variant 2: reduction of the weekly working time by one hour or
variant 3: 6 additional vacation days
What would you have taken? At DB, almost 60% opted for vacation days. In the meantime, IG Metall has also introduced a similar electoral model.
We will experience a lot more diversity in the overall topic of remuneration. Similar to what we are already doing with the organizational models. And yes, New Pay, alternative remuneration models that are geared to the individual demands and needs of the workforce, will emerge everywhere - regardless of whether in a group or medium-sized company - and thus also be a competitive advantage in the applicant market.
An excerpt from the whitepaper "Pay for Performance 2.0". The entire whitepaper is available for download here.