Should We be Taking about the Future of Pay?

One of the blind spots in most conversations about the future of work is the future of pay. Flex or hybrid working, moving out of the expensive cities into the lower cost areas, automating tasks and upgrading skills – all have compensation implications.  And yet the pay conversation in organizations is often a taboo and lacks transparency and equity when it comes to rewarding performance. Besides, employment law and tax law implications still need to be reviewed and rewritten once the truly distributed workforce is the “next normal.” 

Conversations that are prioritized in the front pages of business publications are about pay equity. Whether it is minimum wage or gender pay gap, it is about structural inequalities in compensating employees.  Take minimum wage, if “the stakeholder capitalism”  sounds convincing in the media, in reality, employee compensation as a percentage of the US national output has declined steeply in the 21st century leaving the low wage workers behind and dependent on public assistance to supplement their full time jobs.  Similarly, the economic recession due to COVID19 has disproportionally effected women. It will now take about 35 years to regain the earnings levels of the pre-pandemic economy. 

The conversation is long overdue on how pay will be allocated for work done in distributed, diverse teams and on dispersed locations.   As the pay myths are being exposed, new solutions emerge and deserve more attention from business leaders and HR. 

Myth #1. Pay rewards performance. In reality,  “Pay for Performance” philosophy does not work.  In the workplace that has become more collaborative and agile, team performance is what gets the work done.  Jake Rosenfeld, the author of a new book exposing entrenched economic myths points out this contradiction:  “For many jobs today, the whole effort to measure marginal productivity is misguided — not because the right tools haven’t been developed, but because there is no way to disentangle the productivity of one worker from that of others in the organization.”[1]  

Solution: New compensation philosophy and frameworks that address teams and collaborative projects is long overdue. In the world of uncertainty and disruption the portfolio approach is the only sustainable way to succeed. Consider failures that need to be rewarded for they  contribute to every outcome that succeeds. 

Myth #2.  Pay aligns with Jobs.  Not so fast. It is now the undisputed fact that gender, race and ethnicity play a significant role in determining how much individuals get paid for doing the same jobs. 

Solution:  Kim Scott, a former Apple and Google executive offers a few suggestions that deserve broader attention in her new book  Just Work.  Equal pay for equal positions. Take the subjectivity and bias out of the decision making. Scott advocates for fixed salaries or salary ranges for each role. Sign on bonuses may differ and could be negotiated. 

What is even more important is pay transparency. Pay ranges could be published for all to see, just like in the government jobs. 

Another important recommendation that Scott arrives at is simple: “paying people who get paid less more and people who get paid most less.” 

To get a realistic view of what employees are actually taking home, PayPal looks at employees’ “net disposable income” that shows the income left after taxes. Based on the data,  important decisions are made on how compensation and benefits need to be allocated.

The discussion on the future of pay is becoming urgent and is long overdue and it is perhaps most important. 

[1] Jake Rosenfeld. You are Paid What you are Worth. (Harvard, 2021)