Compensation Trends into the 21st Century

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Compensation Trends into the 21st Century

Author: Laurence J. Stybel and Maryanne Peabody
Source: Stybel Peabody Lincolnshire

Compensation Trends into the 21st Century
Fred Kocher of the Boston law firm Hale & Dorr interviewed Francis X. Kushi about his perceptions regarding compensation trends. The information in this column is dervied from a transcript of that interview and we thought it would be useful to share it. Fran has an excellent perspective to observe these tredns. He writes the "Up Periscope" column for the New Hampshire High Technology Council and serves on the Board of the University of New Hampshire Technology & Management as well as a high tech start-up. He was previously CEO of General Semiconducts and Vice President/General Manager at Sanders Associates.

DOES FORMAL AUTHORITY HAVE ANY MEANING IN THE 1990'S
Organizational structures have been flattened dramatically. In the past decade, over 500,000 middle management jobs have permanently disappeared. That's why "position power" (organizational level and title) has become significantly less important than "expert power" (knowledge and ability to get this done). Managers need to facilitate today - not issue orders as they did yesterday. Managers are far more reliant on personal influence and must put away learned skills about wielding authority and dispensing discipline. Salary increases are no longer based on job titles or organizational level in most companies. In other words, the old approach of fairness and organizational hierarchy are gone. Today, workers are delighted to be employed and in most situations realize that money - i.e. profits - is a very sensitive issue. They are frightened to risk asking for a raise in pay. And management's goal is to contain compensation costs without having to resort to pay cuts. That means continued job elimination and salary caps. It also means an increasing tendency to use outsourcing to accomplish tasks which once were done in-house.

WHAT IMPACT DOES THIS HAVE FOR MANAGERIAL CAREERS
Expect a continuation of generally low average salary increases. The Conference Board began tracking salaries back in 1975. This year, a recent Conference Board survey of 500 companies, found that planned pay increases for 1994 and 1995 are targeted at the lowest levels in nearly 20 years. Keep in mind that we are now in a period of economic expansion, yet planned salary increases are still low. In fact, for the second consecutive year, company budgets for pay raises declined. Planned increases are expected to be 4.3 percent in 1995. We have already seen a rather dramatic shift in the collective bargaining strategy of the unions from pay increases and improved benefits to job security. Union/Management cooperation has improved dramatically.

Fewer Promotional Opportunities for Managers. Flattened organizations result in less promotional opportunities. In the decades prior to the mid-80's, professional employees expected to move up the organizational ladder every 3 years or so. If professionals and managers do not clearly see a next step in their job it probably means that it isn't there.

As we head towards the 21st Century - get ready for Skills-Based Compensation. Company management is looking to compensation analysis to re-engineer salary structures with an eye towards eliminating length of service ( i.e. staying power) and de-emphasizing organizational level as primary determinants for pay increases. The result is a skills-based compensation approach that rewards employees for learning new skills or enhancing the skills they already possess. Approached in the right way, skills-based compensation can be an extension of employee empowerment and could result in front line involvement by all employees. For example, during the last three years Motorola has been experimenting with a "peer review for pay" program. Work team members vo e on one another's performance to determine a portion of the annual pay they will receive. The program, entitled "Team Based Pay" is designed to distinguish outstanding performers and reward achievers. Initially about 20 percent of a team members pay is determine by peers but eventually 50 percent or more will be subject to peer review. This process is the beginning of a trend that will only grow over time.

WHAT WOULD YOU SUGGEST PROFESSIONAL DO OVER THE NEXT 3-5 YEARS
Start now to rethink your goals. If your can't see your next career step where you work - create one! If that's not in the cards, decide what moves would be in your best interest and look for opportunities. If you hear that your organization is targeted for restructuring - consider how you might re-deploy your skills in a different area and begin exploring internal transfers. Beware: once a downsizing/restructuring announcement has been made, realize that you are probably at the mercy of events and the competition for internal jobs will be ferocious.
Don't flirt with obsolescence!!! Work on upgrading your skills before anyone suggests you need to. Be the first to give the "new idea" or "program" a try - even if you think it's worthless! The older you are the more important this is. Remember the word "probation" has been eliminated from every day speech at work. Quick decisions and fast implementation are the rules of business today - and tomorrow. That's where you'll find your competitive edge between today and the year 2000.
Build influence and prepare to negotiate everything else besides pay! Know that your effectiveness and survival depends upon influencing others. All employees in the "new game" must take the initiative and gain voluntary cooperation from peers. There are some excellent programs on "negotiations skills." Start looking for programs that you could take. At the very least, you will find the program useful when it comes time to negotiate your compensation package with your boss.

COMPANIES SAY THAT "PEOPLE ARE OUR MOST IMPORTANT RESOURCE, YET THEY SURE DON'T ACT THAT WAY! WILL THIS TREND CONTINUE
To adequately anwer that question, let me put it in some context:

There is one Global Marketplace. The new global economy must be viewed as one economy and one marketplace. In this new global economy, economic considerations will transcend political consideration. The real task between now and the year 2000 is probably the realignment of political structures so that the globalization of economies can take place. The bottom line essentially is that the globe will shift from economies run by governments to economies run by markets.
The Trade Center of the World Will Shift to the Pacific Rim Cities of Los Angeles, Hong Kong and Tokyo. Boston has historically been an Atlantic-oriented commercial region. Hong Kong's importance is very key because Hong Kong is the gateway to China.
Remember that Asia's Pacific Rim is twice the size of Europe and the United States and has half the world's population. And . . . it is emerging like a dynamic young America but at a much faster pace! This fast paced rise of the Pacific Rim need not signify a decline in the West unless we ignore it and fail to capitalize on it.
The U.S. Owes Japan a Large Debt for shaking us business out of its smugness of the 1970's. As we move further into the late 90's - US industry is about to return the favor.
As we globalize our economies, individuals will become more important than they were in the industrial era. In fact, even today we see the key organizational principal has shifted from management controlling a company to management leadership that brings out the best in people in order to respond to market changes rapidly.
Dr. Laurence J. Stybel and Maryanne Peabody are co-founders of Stybel Peabody Lincolnshire, a senior executive career consulting firm based in Boston and Waltham. Contact them at 781/736-0900.