According to Isaac Getz, lecturer at the ESCP Business School, “the freedom-from company” is a business approach founded on staff responsibility and freedom. Some of the payroll innovations that have issued from this philosophy are the single salary, mutually agreed salaries and self-assessed salaries. A number of businesses have put them into practice with differing results. In this article we will be taking a close look at these three payroll policies.
The single salary, a genuine vector for democratic and equal pay?
The single salary concept is quite simple: you just pay the same wage to all of your staff. The aim is total transparency and equality in employee treatment, less competition and increased mutual aid. These are all very fine ambitions but certain conditions need to be met in order to achieve them.
First of all, everything depends on the actual wage amount and the company’s geographical implantation. A high but fixed wage for all staff can be a genuine vector for motivation and a genuine advantage for your employer brand. If the wage on offer is higher than the market average it can be a good way to build up the loyalty of your talents.
But for this single salary to be a meaningful vector for equal pay, the employees will all need to have similar profiles. An employee considers their value in terms of others, and then evaluates the wage they think they deserve. If all employees receive the same wage even if they have different skills, experiences and performances, then the most invested of them will quickly become demotivated and their productivity will fall.
Naturally, this wage policy will also attract under-qualified staff, who would normally receive lower wages, the single wage policy will be far more important for them than the company’s business policies. On the contrary the more highly qualified talents might feel undervalued and lose interest.
So a single salary is very much a balancing act which may not suit everyone. A new start-up might find all sorts of genuine benefits whilst a large business made up of lots of different departments will probably face real difficulties if it tries to implement such a policy. This wage policy could be just as easily turn out to be beneficial as it could be totally destructive, it all depends on the company’s development stage, size, staff profiles and business sectors.
Mutually agreed salaries, the guarantee of a fair and transparent wage?
Mutually agreed salaries involve delegating the definition of basic pay scales to a group of employees. This group takes the place of a single decision maker, they mutually decide on each employee’s wage. This must help staff to become more responsible as regards their own salaries as well as those of their colleagues and propose fair wages.
This wage policy has the advantage that wage calculations are not entrusted to one single manager. It avoids abuse and contributes to a more objective evaluation of each employee’s performance and profile. However the mutual calculation of wages can be a serious source of tension depending on who is invited to participate in such a committee.
For this approach to be implemented successfully such a wage evaluation committee must only include the company’s executives. This responsibility must not fall on middle management. They will feel ill at ease as regards the colleagues that they work alongside on a daily basis. And in addition to this, the work involved can be very time consuming and require very specific skills, which not all middle managers will have.
Deciding that wage calculations must be the result of a mutual deliberation might be suitable for a large number of companies. But this responsibility must be attributed to company executives who are in a position to evaluate the investment and productivity of employees and not the managers that work within the teams that include the employees.
Self-assessed wages, a way to boost staff motivation?
This wage policy allows each employee to set their own basic pay regardless of their position within the company hierarchy. Businesses that apply this method hope to incite their employees to show their objectiveness and honesty regarding their profiles and performances. This reflective task is expected to vastly increase the motivation of staff. They will have to increase their performance to justify a higher wage.
Whilst this innovation may at first seem to be as attractive as it is surprising, in reality it can lead to a high degree of inequality. Quite simply: to be able to accurately evaluate one’s own wage one would need to have a genuine awareness of one’s own market value. Requiring all staff to have all of the knowledge necessary to undertake such a complicated calculation would be somewhat over-idealistic and clearly unfair.
Employees unable, or reluctant, to argue their case for a higher wage are likely to request a wage well below their true value. Conversely, other employees, who are more sure of themselves, may be tempted to request a wage well beyond the true value of their skills and performances. Wage inequalities will appear quite rapidly within the company and decimate the company’s will to motivate its staff.
In reality, it is totally unrealistic to think purely in terms of wages, the last word will always be that of the employee. If they request a wage to which the employer cannot agree, the employee will feel obliged to leave the company. So in the end, it will be the employer who finally decides the threshold that must be exceeded. Their role is to guarantee the fair treatment of their staff in keeping with market forces. And to do this they must reach some sort of agreement with their staff. A company that wants to be coherent in its global strategy and wage policy must accept the need for an agreement between the employer and the employee.
As far as wages are concerned, it is essential that companies realise the need for equality. Wages must be fair and motivating for the employee whilst also being coherent for the company. These three wage policies, whilst they all contain aspects which can be considered interesting; all present the problem of endangering wage equality. A correctly differentiated wage scheme will tend to meet this equality obligation. This can be achieved by increasing basic wages as and when an employee increases their expertise and experience. However, with incentive compensation it is possible to compensate the achievement of high performance standards where this cannot be done by just increasing the basic wage. Incentive compensation is objective, individual and an effective performance lever that benefits both the company and the employee.