Platt Perspective on Business and Technology

Developing a rational compensation package policy – 6: developing a functionality and functional-needs based compensation policy – 2

Posted in HR and personnel by Timothy Platt on November 30, 2011

This is my sixth installment in a series on compensation policy best practices (see HR and Personnel, postings 63, 64, 66, 68 and 70.) This is also my second posting in the series to explicitly propose an alternative to the standard model that is in place in most organizations (see Part 5: developing a functionality and functional-needs based compensation policy – 1.)

I have been writing extensively in this blog about the lean organization and on focusing strategically and operationally on prioritized and high priority goals (see for example, my 10 part series on Virtualizing and Outsourcing Infrastructure at Business Strategy and Operations, postings 127 and scattered following, and my posting Developing a Business to be Both Lean and Competitive, and Some Thoughts on What that Means.) This series, and this alternative approach in particular that I propose here strongly connects with that.

Most of the work done in any business, directed towards fulfilling strategically and operationally significant goals involves participation on more than one, and frequently many individuals. The easiest way to visualize this for your own business is to think through your table of organization and start asking what would happen, and both for capacity to complete prioritized tasks and capacity to complete them quickly, if particular people in your organization were suddenly missing.

1. Some of the individual employees you would consider as you think through your organization are in true linchpin positions and are the only people there with specific sets of skills and experience that are essential for maintaining key areas of the business.
2. Some hold crucial skills and experience sets that are required at levels that no one employee could satisfy so you have several or even many employees performing essentially the same tasks with the same skills in parallel. Here, I add that you can still find individuals in these groups holding unique value, as for example where each individual of a set has developed particular relationships with and expertise concerning a distinct set of clients, or of vendors. But the basic idea here is that each contributes significantly to the overall operation by carrying a significant portion of an important overall workload.
3. Some employees perform tasks that need to be done, and perhaps even as high priorities but that do not require specialized skills or experience and that can readily be learned.
4. And to round out this set, you may find people on your staff who are primarily working on low priority or non-essential tasks and who do not have skills or experience that would help them to shift to contributing to higher priority tasks and responsibilities. One goal of management, I add here, should be in recognizing good employees who are drifting into this group and helping and encouraging them to develop new skills to remain more relevant. And some of these people should probably be let go.

Employees from group one, above, offer tremendous value to the organization and proof of that is in the cost the business would face if they were to suddenly loose one of these employees and for any reason. Group two employees offer significant value too, but their individual value does not raise to the level that group one employees offer. Group three and group four employees in turn offer progressively less value to the organization and its capacity to maintain a competitive edge.

• If compensation to employees is to correlate with value they provide from working at a business, group one employees should as a functional value level be paid the most and group four the least. This is, among other things where an employee might legitimately be paid at a higher compensation level than their supervisor.
• That sets relative compensation rates. Absolute numbers for direct and indirect benefits and for the cost of the overall compensation package to the employer, would be driven by the marketplace where employers compete for the best employees they can afford, and where prospective employees increasingly know precisely what the market would bear for their skills and experience.

With this in mind, I turn to the table of organization approach that I have been developing in my series Best Practices for Building a Better Table of Organization (see HR and Personnel, postings 65, 67, 69 and 71) and with particular focus on Part 4: building the functionality and value driven organization of that series.

• According to the underlying logic of that table of organization model, one of the key responsibilities of an effective manager and supervisor is to be an entrepreneur, in effect marketing the members of their team to stakeholders throughout the organization for the work they can perform in task and goal-specific functional assemblies (see Part 4 for definitions.)
• Participants from Human Resources and from Finance would then work with a participating employee’s supervisor and the functional assembly’s key stakeholder/owner to determine the value of the employee contribution made – in effect setting in-house price for service. And this would accrue to both team and to the individual employee and establish both what employee category they would rate in of the four outlined above, and what their specific value and overall compensation rate should be. Yes, value and compensation benchmarking would be developed by on the fly functional assemblies too.
• And HR and Finance would coordinately set the overall compensation framework and value and compensation parameters that individual employees and their specific contributions would be scaled with.

With this I have outlined both an alternative approach to the standard table of organization and an approach that would be used in conjunction with it for determining employee value and compensation and for bringing the right employees together to address and complete specific prioritized and high priority tasks and goals.

I add that discussion to this point has only outlined a basic model and in broad brush strokes. There is an expression that I sometimes find myself citing that the devil is in the details. Just as with the traditional and standard models for table of organization and compensation policy, this overall approach has to be customized in detail to best work for the specific organization and its marketplaces – both internal and external.

I am sure to come back to the issues discussed here in future postings and note that I am already planning on adding a fifth installment to my table of organization series in a few days. You can find this and related postings from both series at HR and Personnel.

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