Corporate America Is Changing How It Thinks About Pay, Survey Finds

A new study finds that corporate America is planning major changes in employee compensation in the next few years.

What it comes down to is this: If you’re highly skilled, you’ll benefit nicely. But if you’re not and cannot contribute to your employer’s goals, you’ll be paid less.

According to the survey, conducted from late 1995 through the early part of this year by management consulting firm Towers Perrin, the focus will be on an employee’s overall value to the company’s bottom line rather than how well an employee performs a specific task.

Presently, for example, if an accountant’s job involves doing five specific tasks, he or she can expect a certain salary, said Sandra O’Neal, a Towers Perrin principal. In the future, the accountant will be evaluated solely on “knowledge, skill and abilities,” she said. That means that in addition to possessing and using accounting skills, the accountant will also need to be creative, work well in a team, be sensitive to customer needs and set productivity goals.

“The good news is, if you’re highly skilled and have many abilities, you’ll be paid more,” O’Neal said. “The bad news is, if you’re not skilled and can’t contribute to a team, to customer service and the organization’s goals, you’ll be paid less.”

Of the 750 mid- to large-size corporations surveyed, 81% had undergone a major restructuring in the last three years and more than two-thirds reported that productivity and profits had risen as a result.

Next on the agenda for these firms is developing a new compensation structure. According to the survey, 78% said they are mulling skills-based plans for both management and other employees.

This coming shift, O’Neal said, “is not just isolated or a fad. It’s an inexorable change.”

After World War II, corporations adopted military-model hierarchical organizations in which “the concept of defined tasks worked great,” she said. But as the economy became global, customers were more demanding and problems became more complex.

“Multilayers kept management at a distance from its customers,” O’Neal said. Now organizations must change to stay competitive.

O’Neal says companies will place a greater emphasis on teams and team performance in deciding on raises. If your team does well, you’ll do well. If it doesn’t do well, don’t expect a raise.

Is this fair to an employee who can go the distance but is on a team that can’t keep up?

“That’s an important question we used to ask a lot,” O’Neal said. “It’s not a question we ask anymore. The more important question is: ‘Do we have results?’ ”

To get those results, 27% of the companies surveyed plan to eliminate base-pay increases in favor of cash bonuses and incentives such as employee and team award programs and education.

Companies that can change their culture and view employees as business partners will do well, O’Neal said.

For example, the survey rated some participants as “high-performing” companies, based on a return on equity above 16%.

Those companies also said they already offer employees variable pay and business education, give their managers more control over pay decisions and celebrate employee and team successes.

“They respect employees more, they trust employees more and they value their employees more,” O’Neal said.

“The key to success at high-performance companies is engaging employees in a business partnership. It will improve a company’s bottom line.”