Replacing Old Compensation Models and Mindsets

While this might be yet another example of rising prices and the eternal struggle of margins being passed down to customers, perhaps there is something else going on. As our labor market shifts, and as businesses become steadily more transparent with their data and creative with their fees, we are seeing progressively granular details about how much things cost. At the same time, powerful digital platforms and increasingly sophisticated people data models are quickly transforming the traditional job title and survey-based compensation models that have been the foundation of pay for decades for so many organizations.  

For example, Flextrack has the capability for “unit-based pay,” which can include a number of units such as words written, or packages shipped along with the standard hours or milestones. Through powerful, on-platform analytics, these units can be connected at a granular level to customer satisfaction or NPS scores, as well as many other factors that determine the value of customer relationships. Soon, people analytics practitioners will be very close to directly tying the most minute economic (and other) business returns to individuals and groups and adjusting our compensation strategies based on this type of connection.  

Before we automatically move towards maximum efficiency and “optimizing” the costs of our workforce, however, it’s worth a pause to consider the longer-term impacts of applying older mindsets in this new reality. An example from the hospitality industry can illustrate this point. 

Edgar’s Craft and the Ultimate Dining Experience

As I travel to conferences, I make a point to speak with the frontline workers in each city who make the events and my travel possible. One of these people is Edgar, a sous-chef at a locally owned and operated restaurant in San Diego. I spoke with Edgar after his shift. He said the crew was busy, but the restaurant didn’t make much money that night. Edgar shared his thoughts on education, college, student loan debt, the value of a degree, and the changes affecting him and his family as we go through the current economic transformation.  

He also talked about his love for his craft. His goal is to tap into the hormones and neurotransmitters produced by skillfully-prepared food to produce enough euphoria for a memorable – but not addictive – dining experience. He’s constantly testing new ideas and made a point to praise the agency the restaurant owners give him to create, even if the industry doesn’t pay well. Edgar said he wants to grow his income, but he’s not willing to give up the freedom he has now to chase an incremental increase with a different job.  

Paying for Human Potential

This got me thinking about the value of potential. Sure, Edgar makes a market-based wage for his role and expertise and has opportunities for bonuses if the business does well in terms of margin. But what is the value of Edgar’s ability to apply joy along with skill and commitment to creating increasingly memorable dining experiences? Is it just the number of units he produces while managing waste and meeting minimum standards? Or is it something more?  

Broadly speaking, this raises the issue of human potential in employment and compensation decisions. To combat turnover and burnout among their workforces, many organizations have been granting their workers the agency to create and decide. What is more enigmatic is the question of whether workers are being paid for decisions that positively impact the business and create customer loyalty. Rather than defaulting to older models of efficiency and maximizing near-term return on human capital, hiring, and compensation, managers should use the increasingly granular data available to them to experiment on which factors, like agency, bring out the full potential of their workforce while keeping them energized and engaged.

While there are benchmarks and “real-time” market data available for pricing labor, each organization will need to move beyond the annual salary surveys or rate cards to determine the balance of factors that sustainably increase productivity and customer satisfaction. The best ones will use this data to value the potential of their human workforce as well as optimize returns.   

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