The Future of Employee Compensation

Migrated. Originally posted on June 11, 2009

I read an blog post the other night on what a lot of people think the future of employee compensation is, and it rang a bit close to home. I’ve been talking to some more people online about it and it looks like some companies have started implementing it, and with very mixed reactions from their employees.

The change is from the standard annual salary broken down into an hourly rate, to a base salary with monthly and/or annual performance bonuses. Basically, companies are starting to move more towards a situation where you have to perform to make good money. Personally, I have absolutely no problem with that. That’s the way it should be.

I think that this economy has revealed that loads of companies have tons of dead weight dragging them down. I remember when they first started admitting that we were in a recession, employee productivity jumped. People facing the reality that if they did not perform, they would get the axe started doing what they were being paid to do- work! It makes total sense for companies to move to this model, and I personally think that over the next decade the vast majority of institutions will start doing this. Just think about it, if you perform, you bonus. If you don’t perform, you’ll probably end up getting sacked, but at least the company does not have to pay you the bonuses, which under the old structure they would. Can the system be abused by the employer? Absolutely, but so could the other one. There are plenty of people out there that were underpaid before the recession hit, so don’t compare apples to oranges.

The company I used to work for was in the midst of implementing it as I was cut. Your base salary would be determined by title, not necessarily skill level. Some companies claim that skill level and title match. Bullshit. Then there would be monthly and/or annual performance bonuses. The idea is that they would make up the salary gap between market or whatever. Im not going to get into it, because I think that whatever a company does as far as salaries, if it continues to work for them, more power to them- figuratively and literally.

What does this mean for the Tom Smykowski’s (Office Space) of the work place? With technology, you job may be completely done by a computer that is more friendly than you, works all the time, rarely calls in sick, and does not need your benefits package. 

What does this mean for people that are top performers? Now that the scope of your compensation structure is based around your performance, the ceiling to your income will be clearly visible and defined. Personally, I think people like this will make a transition to the business world as entrepreneurs, and develop internet businesses. In the business world, if you have the chops and you hustle, you get paid. The reality is that in the business world, there is potentially no lid whatsoever to your income.