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Pay People Right!: Breakthrough Reward Strategies to Create Great Companies
Patricia K. Zingheim, Jay R. Schuster · 2000
In a sentence
A practical guide showing how companies can align base pay, variable pay, recognition, and total rewards with business goals to create a win-win 'better workforce deal' that drives organizational success.
Pay People Right! reframes compensation as a powerful strategic communication tool rather than an administrative cost, arguing that pay is the 'accelerator pedal' for business success. Building on six universal reward principles and a four-component model of total rewards (individual growth, compelling future, total pay, and positive workplace), authors Zingheim and Schuster show leaders, HR professionals, and managers how to build a business case for changing rewards and then design integrated pay solutions that reward individual ongoing value with base pay and results with variable pay. Drawing on extensive consulting and research across Fortune 500 and emerging companies, the book tackles the toughest reward challenges—scarce talent, teams, sales forces, executives, mergers and acquisitions, and global operations—and offers a roadmap for making rewards work through involvement, communication, and continuous refinement. It is a must-read for anyone serious about using pay to gain and keep committed people who help make a company great.
The model
A causal model expressing how design levers (business case for changing rewards, reward principles, base pay, variable pay, recognition, performance measurement) and contextual conditions (workforce trust, leadership championing) drive psychological and behavioral states (line of sight, stakeholdership, workforce commitment) that produce outcomes (workforce alignment, talent retention, business performance).
Business Case for Changing Rewardsdesign lever
A clear, understandable business justification that translates business, human resource, and total reward strategies into specific reasons for changing pay, articulating the win-win and the messages the company needs to deliver to the workforce.
Application of Reward Principlesdesign lever
The degree to which the company applies the six reward principles—positive reward experience, alignment with business goals, extended line of sight, integrated rewards, base pay for ongoing value, and variable pay for results—in designing its total pay solution.
Base Pay Rewarding Individual Ongoing Valuedesign lever
The design of base pay to reward an individual's ongoing value along three dimensions: skills and competencies used to generate results, consistent performance over time, and value relative to the labor market.
Variable Pay Rewarding Resultsdesign lever
The use of short-term and long-term variable pay (cash and equity) to reward achievement of business results at individual, team, group, business-unit, or company levels, funded in proportion to business success.
Recognition and Celebrationdesign lever
Formal and informal acknowledgment of individual and team contributions through verbal, written, financial, social, symbolic, tangible, and work-related recognition that magnifies the effectiveness of pay.
Performance Measurement and Managementdesign lever
The process of setting business-aligned goals and providing continuous development and performance feedback that translates company goals into meaningful goals, skills, and competencies for the workforce.
Workforce Trustcontextual condition
The level of trust and confidence the workforce has in leadership and the company, including history of leadership follow-through on promises, which conditions acceptance of reward change.
Leadership Championing and Sponsorshipcontextual condition
Active sponsorship, championing, and role modeling by company leaders and executives in support of total pay aligned with the business, including executive compensation that reflects the same reward principles.
Workforce Involvement in Reward Designdesign lever
The extent to which the workforce participates in designing, communicating, and refining reward solutions, ranging from focus groups to diagonal-slice design teams.
Workforce Line of Sightpsychological state
The extent to which individuals understand how what they do influences the business results of their team, group, business unit, and company, and how they add value to customers.
Stakeholdership and Ownershippsychological state
The psychological and economic sense among workforce members that they are stakeholders and owners in the company's success, fostered by sharing in results through variable pay and equity.
Workforce Understanding, Acceptance, and Commitmentpsychological state
The degree to which the workforce understands, accepts, and is committed to the business case, reward changes, and the win-win partnership with the company.
Workforce Alignment with Business Goalsoutcome metric
The degree to which the workforce's efforts, capabilities, and behaviors are aligned with the company's business goals, directions, and values.
Talent Attraction and Retentionoutcome metric
The company's ability to attract and retain the talent it needs, including scarce talent and global talent, reducing costly turnover and staffing gaps.
Business and Financial Performanceoutcome metric
The financial and business success of the company, including profit, shareholder value, growth, customer satisfaction, and market share, that rewards are intended to help generate.
How they connect
- business case for changing rewards → influences workforce commitment
- reward principles application → predicts workforce business alignment
- performance measurement management → influences line of sight
- variable pay for results → influences stakeholdership
- base pay ongoing value → influences talent attraction retention
- recognition and celebration → influences workforce commitment
- workforce involvement → predicts workforce commitment
- line of sight → mediates workforce business alignment
- stakeholdership → mediates business performance
- workforce commitment → predicts business performance
- workforce business alignment → predicts business performance
- workforce trust → moderates workforce commitment
- leadership championing → moderates workforce commitment
- talent attraction retention → predicts business performance
The process
The book's operating playbook is a strategic framework for transforming a company's reward system from a mere cost of doing business into a powerful tool for driving business performance and creating a 'better workforce deal.' This deal is a win-win partnership where employees share in the success they help create. The playbook begins by establishing a clear business case for change, diagnosing the misalignment between current pay practices and strategic goals. This justification provides the mandate for the core of the playbook: designing a new, integrated 'Total Pay' system. This design process is guided by six core principles, most notably the separation of pay purposes: using base pay to reward an individual's sustained, ongoing value (a blend of skills, consistent performance, and market value), and using variable pay to reward the achievement of specific business results. The playbook details how to construct each component—base pay infrastructure, short- and long-term variable pay, and recognition programs—to work in concert. It also provides specific methods for applying these tools in critical contexts like rewarding teams, scarce talent, and salesforces. Finally, the playbook emphasizes that a well-designed system is useless without effective implementation. The final phase focuses on making the new rewards work through a structured change management process centered on high-involvement design teams, intensive communication and education, and a commitment to continuous refinement. The ultimate goal is to create a dynamic reward system that aligns the entire workforce with business objectives, fosters a high-performance culture, and provides a lasting competitive advantage.
Developing the Business Case for Changing Rewards
To diagnose the alignment of the current reward system with business strategy and create a compelling, data-driven justification for change that gains executive and workforce buy-in.
When to use: When the current pay system is perceived as misaligned with business goals, is failing to drive desired behaviors, or is unable to attract and retain necessary talent.
Step 1Evaluate the company's current and future business situation.
Entry: Leadership has recognized a potential need to change the reward system.
Exit: A clear picture of the company's present and future business context is documented.
In: Business strategy and operating plan, Market analysis · Out: Assessment of the business situation
Step 2Evaluate the current total pay approach.
Entry: The business situation has been assessed.
Exit: A clear understanding of the current pay system's messages and effects is documented.
In: Current compensation plan documents, Pay data · Out: Assessment of the total pay approach
Step 3Identify the alignment gap between business needs and the pay system.
Entry: Both business and pay assessments are complete.
Exit: Specific points of misalignment are identified and documented.
In: Business situation assessment, Total pay approach assessment · Out: Documented alignment gap analysis
Step 4Articulate the business case for change.
Entry: The alignment gap has been identified.
Exit: A formal business case document or presentation is created.
In: Alignment gap analysis · Out: Business case for changing rewards
Step 5Secure leadership commitment to the business case.
Entry: The business case is fully articulated.
Exit: Leadership formally approves the change initiative and charters a design team.
In: Business case for changing rewards · Out: Leadership sponsorship and approval
Designing an Integrated Total Pay Solution
To design a comprehensive and customized total pay system that aligns with the business case, using each pay element strategically to drive performance and create a 'better workforce deal'.
When to use: After a business case for changing rewards has been approved and a design team has been chartered.
Step 1Define the total pay philosophy and allocate the pay investment.
Entry: A business case for change is approved and design parameters are set by leadership.
Exit: A high-level total pay strategy and budget allocation are defined.
- What is the desired mix of fixed vs. variable pay?
- What is the competitive positioning target for total pay?
In: Business case for changing rewards, Leadership-defined design parameters · Out: Total pay philosophy statement
Step 2Design the base pay system to reward 'Individual Ongoing Value'.
Entry: Total pay philosophy is defined.
Exit: A clear methodology for determining individual base pay is designed.
- Will the system be job-based or person-based (skills/competencies)?
- How will lump-sum payments be used for current-year performance?
In: Total pay philosophy · Out: Base pay design document
Step 3Build the infrastructure for base pay.
Entry: Base pay design is complete.
Exit: A base pay structure is created and documented.
- Will the structure use narrow grades or wide bands?
- How will market data be integrated into the structure (e.g., midpoints, reference points)?
In: Market salary survey data, Base pay design · Out: Salary structure (grades, bands, etc.)
Step 4Design the short-term variable pay plan(s).
Entry: Total pay philosophy is defined.
Exit: Short-term variable pay plan documents are created.
- What organizational level will be measured (individual, team, business unit)?
- What are the key performance measures and goals?
In: Business operating plan, Total pay philosophy · Out: Short-term variable pay plan design
Step 5Design the long-term variable pay plan(s).
Entry: Total pay philosophy is defined.
Exit: Long-term variable pay plan documents are created.
- Will the plan be cash-based or equity-based?
- Who will be eligible for participation?
In: Company's strategic plan, Financial forecasts · Out: Long-term variable pay plan design
Step 6Design the recognition and celebration program.
Entry: Core pay components are designed.
Exit: A framework for recognition and celebration is established.
In: Company culture assessment · Out: Recognition program guidelines
Implementing and Managing the New Reward System
To successfully roll out the newly designed reward system and ensure its ongoing effectiveness through strong communication, training, and a process for continuous improvement.
When to use: After a new total pay solution has been designed and approved.
Step 1Develop and execute a comprehensive communication and education plan.
Entry: The new reward system design is finalized and approved.
Exit: The entire workforce has been informed and educated about the new system.
In: Finalized reward system design, Business case for change · Out: Communication materials (presentations, brochures, Q&As), Training sessions
Step 2Train managers on their roles and accountabilities.
Entry: The communication plan is being developed.
Exit: All managers are trained and equipped to administer the new system.
In: New reward system design, Manager role definitions · Out: Manager training programs and tools
Step 3Roll out and implement the new pay programs.
Entry: Communications and training are underway.
Exit: The new reward system is live and accurately paying employees.
In: Finalized reward system design, Employee data · Out: Operational new pay system
Step 4Establish a continuous refinement process.
Entry: The new system is operational.
Exit: An ongoing governance and improvement process is in place.
In: Performance data, Employee feedback, Business strategy updates · Out: Periodic system effectiveness reports, Recommendations for adjustments
Determining Individual Base Pay Adjustments
To enable managers to make fair and business-aligned decisions about an individual's base pay by rewarding their 'ongoing value' to the company, rather than just their most recent year's performance.
When to use: During the annual or periodic salary review cycle.
Step 1Assess the individual's ongoing value across three dimensions.
Entry: The salary review cycle has begun and the manager has their budget.
Exit: A holistic assessment of the individual's ongoing value is complete.
In: Performance history, Skill/competency assessments, Market pay data for the role · Out: Manager's assessment of individual ongoing value
Step 2Determine the appropriate base pay action.
Entry: The individual's ongoing value has been assessed.
Exit: A specific base pay action and amount is decided.
- If performance is strong but pay is already high, should a lump-sum be used instead of a base increase?
- If skills are becoming obsolete, should pay be frozen pending retraining?
In: Assessment of individual ongoing value, Salary budget, Individual's current salary · Out: Recommended base pay adjustment or lump-sum payment
Step 3Communicate the decision to the individual.
Entry: The pay decision has been finalized and approved.
Exit: The employee understands the rationale for their pay adjustment.
In: Final pay decision · Out: Employee understanding of their pay and value
A candidate measure
Pay People Right!: Breakthrough Reward Strategies to Create Great Companies — derived measurement candidates
Business Case for Changing Rewards
Clarity rating of business case; Percentage of workforce understanding rationale
self-report suitability: medium
Application of Reward Principles
Audit score against six principles; Perceived alignment ratings
self-report suitability: medium
Base Pay Rewarding Individual Ongoing Value
Pay-to-market ratios; Competency certification levels; Consistency of performance trend
self-report suitability: low
Variable Pay Rewarding Results
Variable pay as percent of base; Award payout distribution; Funding-to-performance correlation
self-report suitability: low
Recognition and Celebration
Recognition frequency; Perceived sincerity and relevance ratings
self-report suitability: high
Performance Measurement and Management
Feedback frequency; Goal alignment ratings; Coaching activity
self-report suitability: medium
Workforce Trust
Trust survey scores; Follow-through perception ratings
self-report suitability: high
Leadership Championing and Sponsorship
Sponsorship visibility ratings; Consistency of leadership messages
self-report suitability: medium
Workforce Involvement in Reward Design
Number of participants; Involvement level on continuum; Perceived meaningfulness
self-report suitability: high
Workforce Line of Sight
Line-of-sight survey scores; Ability to articulate value-add
self-report suitability: high
Stakeholdership and Ownership
Psychological ownership scores; Stock ownership levels; Share retention rates
self-report suitability: high
Workforce Understanding, Acceptance, and Commitment
Commitment survey scores; Engagement metrics
self-report suitability: high
Workforce Alignment with Business Goals
Goal attainment rates; Alignment survey scores
self-report suitability: medium
Talent Attraction and Retention
Turnover rate; Time-to-fill; Retention of scarce talent
self-report suitability: low
Business and Financial Performance
Profit; EPS; Revenue growth; Market share; Customer satisfaction
self-report suitability: none
The story
The reader A business leader, manager, HR or compensation professional who wants to use pay and rewards to attract, retain, and engage people and gain competitive advantage.
External problem
Existing pay practices are misaligned with the business and fail to communicate the right messages or reward the results the company needs.
Internal problem
The reader feels frustrated and uncertain—pay is emotional, noisy, and hard to change, and they fear losing key talent or wasting reward dollars.
Philosophical problem
It's just plain wrong to treat people as commodities or to offer a 'deal of shortage' when companies can and should create a win-win where everyone shares in success.
The plan
- Develop a total reward strategy and build a clear business case for changing rewards.
- Align base pay to reward individual ongoing value and variable pay to reward results.
- Integrate all reward elements and extend the workforce's line of sight to business goals.
- Involve people in designing reward change and communicate continuously.
- Implement quickly, then refine rewards continuously to match changing business needs.
Success
- The workforce becomes engaged stakeholders who share in and accelerate business success.
- The company attracts and retains the talent it needs and becomes an employer of preference.
- Pay communicates business direction clearly and creates a positive win-win partnership.
At stake
- The company struggles to recruit and retain the best and brightest employees.
- Misaligned pay sends negative messages, breeds entitlement, and undermines business initiatives.
- The enterprise loses competitive advantage and fails to realize value from its reward dollars.
Chapter by chapter
ch01The Business Case for Changing Rewards
The chapter argues that without a solid business case articulated to the workforce, changes in compensation frameworks will neither be understood nor effectively implemented, risking organizational alignment and growth.
ch02Integrating Total Pay
This chapter asserts that the effective integration of total pay elements is crucial for aligning workforce compensation with business goals, emphasizing a holistic view rather than a narrow focus on individual components.
- Total pay is not merely an expense; it must be a strategic investment aligned with business goals.
- Each element of total pay serves a unique role and should be integrated effectively to convey a cohesive message to employees.
- Communication is crucial when implementing changes in total pay to maintain employee trust and engagement.
- Recognition and celebration significantly enhance the effectiveness of total pay by improving workplace culture.
ch03Measuring and Managing Performance
This chapter argues that effective performance measurement must prioritize speed and practicality, intertwining business-aligned goals with continuous feedback to foster real-time organizational responsiveness and growth.
ch04Building Infrastructure for Base Pay
This chapter contends that establishing a solid infrastructure for base pay is critical to attract and retain key talent while optimizing overall organizational performance.
- A competitive base pay structure is essential for organizations to attract and retain top talent.
- The integration of banding and flexibility in pay structures can enhance organizational agility and communication.
- Effective communication around compensation changes is critical to garnering employee trust and understanding.
- Outdated pay structures often harm talent retention; modernization is necessary for organizational success.
ch05Rewarding Performance: Short-Term Variable Pay
This chapter argues for a systematic approach to short-term variable pay, detailing how businesses can reward individual and team contributions to align performance with strategic goals.
ch06Recognition and Celebration
This chapter argues that recognition and celebration are essential components of an effective reward strategy, complementing monetary compensation to foster a positive organizational culture.
ch07Rewarding Teams
In an era where teamwork is essential for organizational success, aligning compensation strategies with team performance presents significant challenges and opportunities for businesses.
- Team-based rewards directly enhance collaboration and overall productivity when aligned with collective goals.
- Traditional recognition methods, like Employee of the Month, risk stagnation; fresh and relevant rewards are crucial.
- Variable pay structures are essential for fostering accountability within teams and must be communicated effectively.
- The transition to team rewards must prioritize engagement and buy-in to avoid detrimental competition among team members.
ch08Rewarding Scarce Talent
This chapter examines the critical role of compensation strategies in managing and rewarding scarce talent, arguing for a comprehensive total rewards approach rather than traditional commodity pay practices.
ch09Rewarding the Salesforce
This chapter argues that effectively rewarding the salesforce requires aligning compensation structures with broader business goals, thus enhancing workforce collaboration and improving overall company performance.
- Aligning sales compensation with business objectives is essential for maintaining competitive advantage.
- Sales professionals prefer compensation models that reflect their role's realities.
- Isolating the salesforce from the overall organizational strategy creates substantial risks.
- A collaborative approach to redesigning sales compensation can enhance motivation and alignment.
ch10Rewarding the Salesforce
This chapter argues that aligning sales compensation with broader business strategies is essential for driving sustainable growth and customer satisfaction, emphasizing the need for integrated and multifaceted reward systems.
- Aligning sales compensation structures with broader business strategies can drive both sales performance and customer satisfaction.
- The case of Xerox illustrates how customer satisfaction metrics can rejuvenate organizational credibility and market share.
- Salespeople increasingly need to act as facilitators and educators, emphasizing the importance of their role in long-term business success.
- A collaborative approach that extends responsibility for customer outcomes across departments is vital for organizational health.
ch11Rewarding Executives
This chapter explores the crucial role of executive compensation in shaping organizational culture and performance, arguing for an alignment of pay strategies that not only emphasizes financial rewards but also reflects broader workforce engagement and accountability.
ch12Merger-and-Acquisition Rewards
Mergers and acquisitions are fraught with challenges but present crucial opportunities for optimizing total rewards that can unify employees and enhance organizational value during transitions.
ch13Global Rewards
As global companies expand, they must navigate complex cultural and logistical challenges in aligning their reward systems to foster both local accountability and global business objectives.
ch14Making Rewards Work
This chapter explores how effectively implementing total pay strategies hinges on design, communication, and workforce involvement, emphasizing that success requires both speed and trust.
ch15Epilogue
As organizations navigate the evolving landscape of total pay and rewards, the chapter asserts that effective design principles will create win-win opportunities between employers and employees, ensuring alignment with business success.
- Effective total reward systems must prioritize employee engagement and active participation in the redesign process.
- Aligning compensation with business objectives creates a stronger partnership between employees and employers, benefiting both parties.
- Customized reward packages can drive motivation more effectively than generic, one-size-fits-all approaches.
- Communication, education, and transparency are critical in facilitating change and securing buy-in during reward redesign.
Questions this book answers
- Why should a company change how it rewards people, and how does it build a business case for doing so?
- How can pay communicate business direction and align the workforce with company goals?
- What are the right uses of base pay, variable pay, recognition, and benefits?
- How should rewards be designed for special situations like teams, scarce talent, sales, executives, mergers, and global operations?
- How does a company implement and sustain reward change successfully?
Glossary
- Business Case for Changing Rewards
- The clear and understandable business justification that explains why pay must change and what value the change will deliver to the company and workforce.
- Application of Reward Principles
- The extent to which reward design embodies the six reward principles articulated in the book.
- Base Pay Rewarding Individual Ongoing Value
- Base pay designed to reflect an individual's sustained, continuing value to the company.
- Variable Pay Rewarding Results
- Cash and equity pay that varies with the achievement of business results and must be re-earned each performance period.
- Recognition and Celebration
- Acknowledgment and celebration of contributions that magnify the effectiveness of pay.
- Performance Measurement and Management
- The process of setting business-aligned goals and providing continuous development and performance feedback.
- Workforce Trust
- The workforce's trust and confidence in leadership and the company.
- Leadership Championing and Sponsorship
- Active leadership sponsorship, championing, and role modeling in support of business-aligned rewards.