Is There A Need For New Pay? If So, For Whom?

Sarah Maximilian
Written by Sarah Maximilian April 16, 2022

In German-speaking countries, "New Pay" has been used recently for compensation approaches in agile or self-organising environments. But a study by New Pay Collective and the Pforzheim University shows most of the New Pay ideas can be effective more widely.

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What does it take to promote a working world that serves people and not the other way round? Or, what prevents people from following their convictions and finding their professional passion/calling? One big influence is the way they are paid.

We often don't do things for money but, like it or not, it drives actions. Personal development, motivation, value creation, profitability and sustainability – all are closely related to pay.

Pforzheim University looked closely at these interactions. This was done with the New Pay Collective (a network of people and organisations interested in the development of compensation systems, and new thinking about rewards). Their report summarises the important results of this joint research.

We often don't do things for money but, like it or not, it drives actions. Personal development, motivation, value creation, profitability and sustainability – all are closely related to pay.
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How are culture and pay connected?

The report says compensation systems are a reflection of, and an influence on, organisational culture. Therefore, they should not only fit the strategic orientation, but also the culture needed to be successful, because behaviours that are rewarded via pay become dominant.

The New Pay Report examines this connection using seven New Pay dimensions.

These are Fairness, Transparency, Self-responsibility, Participation, Flexibility, We-thinking and Permanent beta. See New Pay: Bringing More Fairness To Salary Issues.

What distinguishes New Pay from traditional systems?

New Pay builds on classical compensation approaches but develops them further. Take Fairness as an example. In classic systems, it is mostly about assessment and subjective criteria. In New Pay, procedural justice is important as well as distributive justice. This puts more focus on structures and process.

New Pay approaches also expand other dimensions. For example, flexibility is a focus in classic systems. But while benefits can be selected according to individual needs, New Pay also takes into account employee choices on working time, leave and salary.

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New Pay dimensions independent of cultural maturity

To show the connection between culture and compensation, the New Pay Report uses as a basis the maturity models of "Spiral Dynamics" (according to Beck and Cowan,1996, 2014) and "Reinventing Organizations" (according to Laloux 2014, 2015).

According to these, six of the seven New Pay dimensions are relevant for organisations regardless of cultural maturity. This means all, and not only "rebels", can be effective with “New Pay” rewards. But classic compensation systems are somewhat unsuitable for New Work.

And New Pay fits better for purely performance-oriented companies on five out of seven dimensions. In qualitative interviews, employees desired more team bonuses rather than individual bonuses or profit-sharing. Although performance evaluation is considered fair, it is often perceived as subjective and influenced by political behaviour.

Performance as an aspiration remains vague and employees observe current performance evaluations only represent a part of value creation.

Fairness is more important than participation

According to the survey, employees first want fairness (56.9 per cent), followed by flexibility (46 per cent) and transparency (33.2 per cent). The dimensions of participation (22.8 percent), we-thinking (18.3 percent) and permanent beta (13.9 percent), were selected by fewer respondents. Self-responsibility is the least important (8.9 per cent).

Despite an emphasis on teamwork and collaboration, this aspect is rather uncommon compared to compensation. Taking personal responsibility for one's own salary or that of other employees is attractive to very few respondents. Here, the findings show that small, simply structured new-work companies can best implement self-responsibility.

Recommendations

What does this mean in practice? It’s not advisable to take the weight of the New Pay dimensions in the survey as a guideline for action when changing compensation systems, because it is only a snapshot.

It is striking that employees often chose the dimensions they know from practice and that pay attention to their individual needs - like fairness, flexibility and transparency.

The dimensions Participation, We-Thinking and Permanent Beta, which they find less important, are more directed to the community, the future or functionality. Without being asked to balance organisation and personal needs, employees are likely to choose the personal perspectives.

In summary? More communication around the design of pay systems is needed.

This is a guest post by Sarah Maximallian, a New Pay Pioneer, and Stefanie Hornung, a freelance journalist, both specialized in topics of New Work, HR, Management and Diversity. For more information on Sarah and her work, check out her rebel page. For more information on Stefanie and her work, check out her rebel page.

Written by Sarah Maximilian
Sarah Maximilian
Reward Coach | New Pay Pioneer | Comp & Ben Expert | Organisational Designer | Agile People Facilitator | System & Culture Thinker | HR Data Analyst
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