Agile compensation: trend or fad?
Updated: Jul 5, 2022
In people management, several practices come across as fads. But there are also trends, which are emerging practices that have potentially come to stay, since they bring fundamental change to the macroenvironment.
An example of fad is the myriad of posts about onboarding kits on LinkedIn. If, at any point, company swag was considered a form of Employer Branding, it is now commonplace and tires our eyes when scrolling the feed.
On the other hand, whenever we analyze the current trends, Agile is amongst the strongest. In addition to new organizational structure designs, which have been making headway in the last few years, the values promoted by Agile have been causing significant changes to the nature of work. It takes up strong notes of collaboration, autonomy, trust, focus on interaction, transparency, simple processes with greater emphasis on people, socialization of learning, co-building of practices, transformation of the leadership role and presence of self-organized teams.
Such changes are a growing trend, sustained by the values and aspirations of new generations and by the current movement toward fairness and transparency at work. And of course, as must be pointed out, by the positive results perceived from using Agile principles at organizations.
All that will significantly change the way of designing People Management processes and practices, promoting the redefinition of many of these processes, while others cease to make sense. Out of these, Compensation is the one that's been affected the most, since the transformation in work nature highlights how incoherent many practices and compensation programmes can be in this new scenario.
A process in which only the manager takes part in establishing compensation goes against the agile principle of transparency;
If the strategy produces individualism, it goes against the intrinsic feature of Agile teams which is collaboration, and that'll harm the acquired learnings. People will play a game in which knowing more than others equates to having higher salaries;
Only collaboration is taken into account but individual performance is not valued, it fails to consider different levels of effort, causing people to not feel acknowledged in that sense;
In a self-organized team, as it grows, collective salary negotiations become impracticable.
All of these factors explain why we consider Compensation the weakest link of agile transformation. Deloitte's Global Trends for Human Capital research, confirms the hardship companies face in reconciling their compensation practices with this new trend. Only half of the surveyed organisations stated that they can value individual contribution in their compensation processes, even though most consider that aspect to be of great importance to build the employee's sense of belonging in the organization.
Another considerable gap is that,
even though more and more organisations have been encouraging teamwork, 63% still haven't aligned their compensation strategy with this model of work.
That makes these companies give off ambiguous information: "The work must be collaborative so as to generate highly valuable delivery, but we pay by competition and individualism”. In other words, Compensation practices promote the very behavior the company wishes to avoid. A mystery remains for these organisations: how to compensate individual performance, without encouraging competition amongst the employees? Or better yet, how to reward individual performance and simultaneously encourage employee collaboration?
A third very important point is the loss promoted by current processes to the employee's perception of justice: even though that perception has 5.4 times more impact on employee satisfaction than how well-paid they actually are, only 1 in every 5 of them believes their compensation to be fair, according to Payscale research.
According to Deloitte, 87% of the surveyed organisations are redesigning their compensation process or will do so in the next few years and 69% understand that the change in compensation strategy is important for their future success. Besides that, despite having tried repeatedly, they still haven't figured out a model that conforms to the new work format, being caught in a cycle of infinite redesign.
Agile compensation: A new method for a new work format
“Agile compensation”, is a compensation approach which has been reshaped in light of agile values. In other words, it represents a participative compensation process, which takes people's autonomy into account, admits and respects collaborative characteristics of teams, being able to stimulate it at the same time as it creates mechanisms to identify the contribution of each member. It's a process that generates a strong perception of justice, since decisions are not only influenced by managers, but also by team members, making it transparent.
Agile compensation is far from being a fad, it's a trend that stands out as the ideal option to simultaneously deal with the expansion of agile values and consequent work transformation and the incoherence generated by these factors inherent to tradicional processes. As proof of it being a trend, there's the evolution, which the compensation process has been undergoing, towards Agile. 360 degree reviews were a primitive attempt at building a more collaborative format. Most recently, with systems such as Holacracy, Teal and Management 3.0, this process has developed, giving birth to more mature - but still very complex - processes such as Salary Formula, Self-Set Salaries and compensation circles. Currently, Team-Set Salaries is the most evolved agile method for compensation.
Team-Set Salaries, which was created in 2002 by Klaus Wuestefeld, came up from the need to provide compensation for a collaborative team that was growing very fast. When he was a manager of a Devs team at Objective Solutions, and used to set each employee's compensation in One-to-one negotiations, Klaus noticed that he would spend too much time on these dealings, and it bothered him to be in a position of making decisions based solely on his own perception of each person's work.
For believing in the agile values, he wanted a method in which the team itself would have autonomy to split the compensation budget, based on the many interactions and the complementary knowledge that each would have about the others' contribution. From his own experience, Team-Set Salaries was created.
It is a method that meets the current work format transformations. It satisfies the needs of self-organized teams and flat hierarchy companies, but also the needs of teams in traditional hierarchy companies. The method favors transparency, perception of fairness and allows for each member to know the team's opinion, as a whole, about their contribution. That way, compensation decisions won't solely rely on the perception of the administrator, who can only capture one single point of view on the employee. Who truly does have knowledge about the contribution of each colleague is the team itself, and Team-Set Salaries manages to capture all of these appraisal viewpoints and balance them, providing a clear, actionable result that corresponds to the team's consolidated opinion. Not to mention that the method is the best way to acknowledge individual contribution, stimulating collaboration at the same time.
If you, just like most of the companies surveyed by Deloitte, also understand the fundamental importance of your compensation strategy for organisational success, learn more about Team-Set Salaries to promote transparency and fairness in your process.