Should Pay Structures Reward Team Players or Soloists?
I'm working with a business that's revising its compensation structure. The issue is tricky for two reasons. First, everyone around the table instantly and unavoidably assesses each proposal for its personal, rather than strategic, impact. "What's in it for me?" is a question few will postpone when it comes to money. But more intractable still, the issue leads straight to a philosophical question: do they want to build a strong team, or do they want to build a freelance shop that (they hope) will attract superstars? Money can build either kind of business -- but are the two mutually exclusive?
If the company wants to succeed by building a strong team, then the pay policy has to reward everyone on the performance of the company overall. The employees all depend on each other in order to do their jobs well; they should be rewarded -- or otherwise -- together. A bonus structure tethered to overall company performance is a powerful way to send the message that what matters here is how each individual contributes to a project greater than any one of them.
What could possibly be wrong with this? Well, first of all, it requires that everyone trust one another to do their best. And it demands that failing performers either improve or leave -- otherwise it just isn't fair. But the more serious objection is that this creates such a level playing field that superstars with astronomic earning potential just won't come to such a firm. They want the opportunity to command high fees and to keep most of their own upside. A level playing field, the argument goes, won't attract these rainmakers.
Several aspects of this debate bother me. First, I'm not sure there are that many rainmakers with unlimited earning potential out there. Nor am I at all persuaded that I'd want to work with someone who is so exclusively dedicated to working for him- or herself. If they're so focused on their earnings, why join a firm at all? Why not remain a gifted soloist? However talented the individual, if personal earnings are the top priority, they may build themselves terrific careers, but they won't build a great company. And they'll be off whenever the opportunity for yet more cash arises.
Dan Pink's work on motivation suggests that too much reward damages motivation. It doesn't, he argues, answer our greater needs for meaning, autonomy and purpose. But what bothers me about the huge-pay-for-superstars approach is that money encourages extremes of individualism that make any larger corporate purpose impossible. In other words, these so-called superstars impose a high cost that isn't just money.
In the end, the choice the company has to make is whether it wants to build an enduring firm which seriously values teamwork or a loose aggregation of selfish genes. Which company would you rather work for: The one where the sky's the limit -- but only for those who make it on their own? Or the one where everyone collaborates to build a profitable business? Does anyone think the two can be combined?
