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Pay Policies To Suit The New Economy


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Pay Policies to Suit the New Economy

It's a wild and woolly time in the American workplace. A super-tight labor market has shifted power from bosses to workers, and compensation may never be the same (page 38). Dot.com envy is driving everyone crazy. And options, signing bonuses, and BMWs are changing the rules on how employees are compensated. The churn rate is soaring, the burn rate is growing, and people want to know if it's temporary or not.

Odds are, the answer is "not." Companies coping with the sizzling workplace with Band-Aid solutions should start thinking about a permanent restructuring of their pay practices. For it appears that a fracturing of the workplace is under way: A many-tiered workforce is emerging, doing a greater variety of tasks and demanding new forms of compensation. The New Economy has its own distinctive labor needs, and they are tearing apart the work patterns of the Old Economy.

The tension can be seen at corporations across the country. As brick-and-mortar companies move onto the Net, they are hiring a horde of new employees, who demand options and pay far exceeding anything regular workers get. The distortions are often shocking, as loyal employees watch tech- or Web-savvy people come in at much higher pay levels.

What to do? Share the wealth. The risk-reward ratio is changing in society. Stock is the new paper money--and not just for dot.com startups and top execs. Most employees seem willing to give up some salary to take a chance on the growth of their company. Companies should start pushing options down from the highest ranks into the lowest. They should also tell their shareholders what it will cost.

Splitting apart uniform pay policies may also be necessary. Right now companies are breaking their own pay scales on an ad hoc basis as they scramble to hire. Some employees get huge salaries; others don't. Some get options, others don't. Some get bonuses; others don't. It is a short-term recipe that breeds long-term animosity and trouble. It might be best to formalize the obvious--the labor markets for different businesses within a corporation demand different compensation--and to make the pay plans transparent. Employees who get the skills can then shift among the various operations.

The shape of the new workplace is just coming into view. Perhaps the changes are temporary and will go away at the next downturn. No smart manager, however, should bet on it.


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