At Management 3.0 we talk about salary formulas a lot and are constantly experimenting with new ideas that might work. The most important thing about having a good compensation plan is that it’s not only fair but it supports the culture of an organization. Done well, a salary formula can help you keep the trust, prevent demotivation, and pave the way to total transparency.
Money is a sensitive topic, and treating this topic delicately requires some thought, foresight, and organization.Jurgen Appelo
Why is it so important to have a well-defined salary formula?
- We want the world to know that we pay people fairly for the value they create.
- A good plan will let us attract and keep the right people.
- A good compensation plan can create stability in uncertain times within an organization.
- Of course money influences motivation. A good compensation plan makes sure that joy and productivity stay strong too.
- This all reinforces a culture of trust.
Before we delve into creating the perfect plan it’s worth discussing what the compensation will be based on. We have three options:
1: We can pay people for the time they make themselves available, and leave it to their managers and peers to get the most out of their presence
2: We can pay people for the results they generate for the organization and leave it to managers and peers to provide them with useful input.
3: We can pay people for the effort they put into their work and leave it to managers and peers to turn that effort into successful results.
Changing the salary structure in a business is not easy, but you have to start somewhere and we want to help make it as painless as possible. So why not start with…