Rosener-oped/jan18/mark1st/mike2nd

Judy B. Rosener

I spend time talking to MBA students in their 20s and 30s. I listen to my working children, their spouses and friends in their 40s, and I converse with corporate and government executives in their 50s, 60s and 70s.

What I’ve learned from these conversations is that at different stages in personal and professional lives, compensation needs and preferences change. Furthermore, those with the luxury to pick and choose where they work (what I call “highly desired employees”) would like a choice in the way they are paid, with an opportunity to change their choices over time.

For example, young unmarried males, if given a choice, would probably choose a different way to be rewarded than a middle-aged father of three children with a working wife. A female single parent with elderly dependents would probably want to be compensated differently than would a partner in a dual-career family with no plans for children.

So no longer can we assume, as Jeffrey Pfeffer states in his Harvard Business Review article, “Six Dangerous Myths About Pay,” that money is the primary motivator. “Cafeteria-style” benefit programs that provide employees choice are found in many firms that realize the workplace isn’t what it used to be. So why not provide a choice in pay for performance?

Currently, compensation is generally segmented into pay for performance, such as cash, bonuses, stock, options, deferred income, etc.; entitlements such as health insurance, parental leave, flex-time, long-term care, etc.; and retirement benefits such as pensions and severance pay.

I am proposing that these components be combined, with a list of non-traditional rewards added. Examples of non-traditional rewards might be a six-month sabbatical, discretionary non-taxable funds, free financial or legal services, 200,000 first-class air miles, college tuition for offspring, the use of a personal driver, a home computer and personal computer advisor, high-end store vouchers, family trips to faraway places, season tickets to theater or sports events, or individualized work environments. The possibilities are endless.

It seems to me that rethinking compensation is consistent with the challenge thrust upon today’s organizations to be more adaptable, flexible and competitive. Clearly, it is needed in order to recruit and retain the best and the brightest.

So here is my proposal: Offer highly desired employees a choice of compensation packages that are based on expressed life cycle needs and preferences. And tie the packages to income and responsibility levels.

Today, there is only anecdotal evidence about a demand for changes in compensation planning. With this in mind, I am surveying, with my colleague Kim Jaussi, top-level employees across industries and regions to determine whether there is a connection between life cycle demographics and compensation preferences.

If it turns out, as I suspect it will, that there is a connection, the development of compensation packages based on life preferences will be an idea whose time has come. These packages will both provide employee choice and guarantee a measure of cost certainty to employers.

Clearly, there are problems associated with moving to this type of compensation policy. Traditional wage and benefit personnel would probably find the change burdensome. There are legal and tax implications that have to be addressed. There is the question of how non-traditional rewards would be valued. There is the issue of how percentages of compensation components would be allocated within a set of packages.

However, these problems are not insurmountable. In fact, I predict companies will choose to outsource the development of various compensation packages and a new consulting niche will emerge. At the same time, this will allow human resource personnel to spend more time on strategic planning with top management and less time on wage and benefit concerns.

There are many obvious payoffs to this type of compensation policy. It overcomes the fairness issue that is raised when some employees receive benefits that others do not (parental leave, for example). It provides firms increased flexibility, since at times they have less cash and a greater ability to offer a sabbatical, bartered non-cash rewards, or deferred income. Most important, it provides a way for organizations to maximize their recruitment and retention options.

I am convinced that if it is shown that life-cycle demographics are linked to compensation preferences, firms that offer choices will have an advantage when it comes to recruitment and retention. In any case, I suspect that such a change won’t happen quickly.

For as Eric Hopper said many years ago, “Even in slight things, the experience of the new is not without some stirring and foreboding.”

(Anyone interested in participating in my study should contact me at [email protected].)

Judy B. Rosener is a professor in the Graduate School of Management at UC Irvine. She is the author of “America’s Competitive Secret: Women Managers.” She can be reached at [email protected]