Employee Reward

From time to time I come across an article talking about how some company has restructured to allow employees to be more flexible. These article generally describe how the company no longer has specific working hours for employees; the employees are now responsible for making sure the work they are assigned gets done, and how and when they do it is up to them. Although I expect the changeover to be slow, I think we will see more and more businesses adopting a similar model as time goes by.

In the early days of the industrial revolution, most employees were simply operating machines. Their productivity was determined by the machine they were operating, and there was little they could do to increase or decrease productivity. Under these kinds of conditions, hourly wages made the most basic kind of sense. The company could easily calculate the value the employee brought in as a function of how long that employee was at the factory. Factory jobs today, as well as many other jobs, such as restaurant work, or customer service staff at a shop of some kind, continues to be true to this model.

Today, an increasingly large part of the population is involved in a very different kind of work. The change is more noticable in some fields than in others, but basically any job that can be done at a desk falls into this new category. Desk jobs, as I will call them, are generally jobs that deal with processing information or creating new information. Although most companies continue to work as if they could, it is not really possible to measure the output of these workers using a clock. That's because, unlike workers in a factory, the productivity of an information worker is not bound by outside sources. In a factory, two workers working the same machine will tend to get very similar results because there is very little need for them to exercise that most important of human faculties, their minds. Information workers, on the other hand, are working exclusively with their minds, and so the productivity will be vastly different between two workers based on ability, and can even be hugely different between one day and the next for a particular worker.

Considering the difference between an information job and a factory job, how can an employer properly compensate employees for their output? In some fields, like sales, commission is an excellent way to make sure that the top employees are getting the top benefits, but in other fields, such as marketing, there is no simple way to measure the effectiveness of individual employees. In many cases, I would not be surprised to find that certain employees are twice as effective or more as other employees, though I doubt there are many cases where pay reflects that. And so, we come back to the model I mentioned briefly at the beginning of this post: assign goals and let the employees figure out how to handle them.

Consider a group of people all with fairly similar, fairly specific duties. Given any group, it is inevitable that some people will be better at any given task than others, but as they are all doing the same thing, it is very difficult for a company to pay one person more than the others. What a company can do is assign those workers specific tasks, say get it done, and then let each worker deal with it in his own way. Assuming they all just work on it until they are done, the best workers will finish early and go home, and the less skilled workers will take longer, perhaps much longer. In some cases, the unskilled workers may end up working longer than they did originally, because there is no magic clock that says they can go home now, regardless of the state of their work. Although all the workers are receiving the same salary, the top workers are now receiving a lot more money per hour. Furthermore, there is no reason to suppose anyone will just work on their assigned work until it is done and then take the rest of the day, or the week, off. All the workers now have flexibility in their working schedule. They can have a leisurely breakfast with their families, or take afternoon karate classes. Again, the best workers get more flexibility, because they finish the work in less time. So, by setting up such a system, the company has given the top workers a huge bonus, without paying them anything extra. It has also given all the workers an incentive to work harder and faster. The experience of many companies has indeed shown improved output when this kind of system is implemented.

This kind of system is not applicable to all types of jobs, even information related jobs. But as companies continue trying to become more and more competitive, and to attract the best employees, those companies which most accurately reward their employees for their output will tend to come out on top, all other things being equal. The corporate mindset is very deeply entrenched in society, and so I expect the change will be slow, but as I see more and more articles about companies trying this and other models, it is becoming clear that more people are realizing that accurate employee reward is important for both employer and employee alike.