Despite digitalisation, AI and robotics, good and loyal employees are an organisation’s most important and valuable ‘assets’. Ultimately, people ensure long-term success and prosperity through creativity, responsibility and commitment. Therefore, the question has always been about a fair, sustainable, success-stimulating and attractive remuneration both for employees and employers.

A remuneration model should not be too complex and yet be coherent. At the same time, old ways of thinking often get in the way. Let’s look especially at four of them here.

The first antiquated thought pattern says that work is a compulsion. Work is an unavoidable necessity and cannot be based on freedom, joy and self-realisation. 

The second thought pattern is that people are by nature unwilling to work. Therefore, they must either be motivated (“carrot”) or put under pressure (“stick”). 

Both lead to the sordid and false assumption that people are inherently lazy and do not want to work.

The third, equally inaccurate pattern of thinking is that employers have nothing else in mind but to keep employees in their place and exploit them. 

The fourth wrong way of thinking is assuming that an employee is constantly rebelling, either himself or by proxy and playing the defensible David against Goliath.

These wrong, old-fashioned thinking patterns lead to working against each other, wearing each other out and becoming frustrated. However, a robust, sustainable success can only be achieved by working together, primarily when focusing on something meaningful, and enthusiasm plays a role. It often becomes apparent that the vast majority of people perform well with pleasure and satisfaction, thinking along with the company and are excellent team players. Provided that managers have the necessary trust in them.

People like to work

Let’s face it: in a welfare state, no one has to work. We survive that way too. Nevertheless, most people take advantage of the freedom to look for their dream job or at least a career with development opportunities. 

Alternatively, anyone can even become their boss as a self-employed person or entrepreneur at any time. The commitment of entrepreneurs is also based purely on willingness and enjoyment. Every top performer could alternatively put his feet up, get hired or try his luck on the stock market.

This brings us to the basis of a contemporary remuneration model: it needs trust and a respectful relationship at eye level. Employees should be able to trust that a decent employer will also run the company in its employees’ interests and that employees will be fairly remunerated in the process. 

The respectable entrepreneur’s aim is not to just reap and keep the benefits for himself; however, he is entitled to profits and these are necessary in order for the company to continue to prosper and position itself as crisis-proof as possible. 

Three levels of remuneration

Once these preconditions have been established, this three-tier hybrid system has proven its worth:

Level 1. Basic pay: every employee first needs a fixed basic income that can be reliably counted on every month to cover their fixed costs (housing, household and food, clothing, material costs, mobility, etc). This basic payment should never be so high that it is already sufficient for the employee. Instead, this is − deliberately − rather the lowest usual on the market so that the further remuneration levels develop their desired, guiding leverage effect.

Level 2. The performance-related component: This is about appreciation, recognition and profit-sharing for good performance. It is based on what is in demand in the profession and the respective industry. Unambiguous rules and measurable, comprehensible values for both sides must be defined for such variable income to prevent arbitrariness. If results such as quality criteria, business and productivity goals and time targets are actually required, then payment should also be result-oriented. This can be designed at the individual level or to promote group dynamics in combination at the team and corporate levels. Level 2 can also depend on reliability, for example, of night security guards or on-call services, or to social components contributing to atmosphere, such as the spread of cheerfulness in crucial positions of mood-makers, like receptionists, secretariat or hotline operators.

Level 3. Peak performance: This is when someone achieves something that is far beyond good performance. However, it should be used sparingly because its reward should remain exceptional. A top performance could be an ingenious idea that improves the production method many times over or creates a significant competitive advantage. Or an outstanding commitment by someone outside their area of responsibility that results in an order worth millions. Or when a receptionist, with all her charm, conducts a conversation with an angry customer, calms him down, sustains the customer relationship, leading to new order being placed. Also, a high, extraordinary commitment in an emergency, an almost superhuman performance or when someone demonstrates civil courage. 

Such peak performances should always be acknowledged in front of the assembled staff and should always be rewarded with adequate multiple offers (money, benefits in kind, time) from which the employee is free to choose. 

Reward strengths, not weaknesses 

It is important to reward employees’ strengths rather than weaknesses. This includes always giving open feedback on any weaknesses and clarifying: “If you want to carry on with your weaknesses, that’s your business. You are, so to speak, your own entrepreneur within yourself. If you want to correct them – wonderful! We will support you and gladly reward you for everything you turn into strengths”.

This gives a helpful approach to designing a modern, people-oriented, humane remuneration model, promoting overall sustainable success and having a continuous existence model through a self-developing pull effect.

Reinhold M. Karner is an entrepreneurship and start-up evangelist, chairman, entrepreneur, author and Royal Society for Arts, Manufactures and Commerce (RSA) fellow.

www.rmk.org

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