Evolution of Compensation / Workplace

image According to the 2012 US Census, from 1978 to 2008 individuals who aged from 18 to 44  held an average number of 11 jobs.  Compare that to the industrial age, when you were lucky to have a job.  Quite the change.

So what happened?

Due to the natural evolution of the workplace, industries, etc. the following took place:

  • movement from non-skilled to skilled work
  • increase in freelancing, consulting, and other “free radical” work styles
  • general increase in worker mobility
  • lower barrier to enter a new professional area
  • globalization of the workforce

and so forth.  Effectively, capitalism started working: the industrial revolution, which initially lead to a lot of abuse during its volatile introduction, has now brought us to a world where worker mobility is high and it is no longer the case that you are “lucky to have a job”, but that the employer is “lucky to have you.”  It became more of a two-way street.

All this significant implications on company culture.  During most of the 20th century, the workplace resembled a pyramid, where the boss is at the top, the managers are below, and then the employees are at the bottom, subject to manager’s whims.

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However, the present-day workforce structure has been moving away towards more open and decentralized models (not to be confused with anarchy).  Front-line employees are the ones with the most essential skills and understanding, so they become the primary asset – more important than mid-level managers.  So we’ve moved towards the following:

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Notice the changes:

  • A flat, rather than hierarchical structure.  One of the more extreme examples of this is Valve (Boing Boing: Valve Handbook).
  • Cross-level integration of front-line employees to facilitate strategic planning.
  • Managers are more engaged in the teams and play a supporting, rather than a guiding role role.

This resulted in companies investing a tremendous amount into culture and deviating significantly from the wrought-iron style of the 20th century top-down management.  Zappos pays people to quit in order to ensure quality and culture of talent (Businessweek).  Google focuses on creating an amazing environment for its teams (Washington Post Article).  Companies large and small wreck their brains thinking about engagement as related to compensation – after a number of studies about motivation (FS: Dan Pink on TED), the thinking has shifted from “what is?” to “what is perceived?”.  This has lead to a number of changes with introduction of the concept of “radical transparency” (FS on BusinessInsider: Transparency Makes Employees Happier), which has been gaining ground with application ranging from Open Book Management (book by John Case) to full cult-like transparency at Bridgewater Associates (NYMag Article).

All this is happening in the context of evolving compensation: equity, options, SIPS, ESOPs, phantom stock, etc. – a gradual shift from high short-term fixed-cost, to a fixed-cost/variable-cost hybrid, to a long-term variable-cost-focused outcomes-based approach.  Then we should note that such transitions affect the risk distribution between employers and employees.  Small and medium-sized business grew to provide the bulk of job creation (Washington Post), but are much more sensitive to cash flow fluctuations than larger companies.  And so have evolved to try to keep short-term costs down while offering employees upside participation.  This shifts more risk (and consequently, responsibility creating “skin in the game”) to employees resulting in increased engagement along with a matching drop in short-term costs.

If we put the compensation trends together with those in evolution of company culture, the question everything seems to come down to is: “How do you compensate people proportional to the value they create?”

This inevitably leads us to the following conclusion: present evolution of compensation, workplace, operations, and company culture approaches are moving towards generating partner-like engagement and behaviors.

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