Or, “How the heck do we pay people in this new organization model?”
What would you do in the following scenario…?
Your CEO and Board have decided that organizational structure trumps compensation when considering employee engagement, creating alignment and your “customer centric” business model. With this in mind, they have just announced the rollout of a radical new organizational structure called Holacracy.
What exactly is Holacracy?
Holacracy is a new, and radically different, management system that dramatically changes our traditional beliefs about organizational structure, decision-making and how power is distributed throughout a company or team.
Zappos and several other well known, customer centric companies, have recently adopted Holacracy.
Video credit: HolacracyOne.
Essentially, a Holacracy is an organization that is self-organizing and self-governing. After getting over the initial excitement of working in an open, dynamic, quickly changing organization, the obvious question then quickly becomes…
“How the heck do we pay people in this model?”
Suddenly, traditional hierarchy-based compensation models no longer apply.
Position grading, career ladders, market-based pay…. Heck, even the salary survey and the network of colleagues that you’ve come to depend upon for data no longer apply! Even crowd sourced compensation sites such as salary.com, or Payscale, no longer apply!
Is Holacracy a cause to shake in your boots? Or cause to celebrate?
Well, I for one prefer to celebrate so, let’s check out one approach that can be used to solve for this very exciting and quickly emerging organization model!
1. Internal position value matters
So, now that salary surveys and external benchmark sources are no longer relevant to the Holacratic organization, the only true benchmark that you have is the intrinsic value that your own organization places on each and every individual position.
In fact, in a Holocracy, it is no longer the responsibility of managers or the leader of the Compensation/HR group to define the value.
Yes, it is now the collective of all employees coming together to self-organize, self-govern, and assess the relative, intrinsic value of each and every position in the Company vis-a-vie the business strategy and customer objectives.
Imagine creating a matrix Position Structure that is designed, governed and regularly assessed by all employees. Possible? Yes, possible and it has been done successfully. The head of Compensation/HR now needs to become a master discussion facilitator and a guide rather than the “expert”.
2. Relative contribution matters
As we assist more organizations move toward Holacratic structures, the downstream business implications (compensation, training, self-organizing tools, knowledge sharing, etc.) become even more exciting!
Now, how do you help your team determine value or measure success?
Think Relative Contribution. This may sound familiar but there exist very subtle nuances…
What the Holacratic organization (self-organizing and self-governing) cares most about is…. (drum roll please!)…. the impact that each individual position makes on the actualization of the business goals.
Sounds simple? Well, not really!
Here is the nuance if you’re still wondering (and trust me, many do not catch this the first time through): relative contribution and impact on the business goals changes over time. It evolves.
So, to be highly effective, the Holacratic organization depends upon open, transparent, politics-free communication. It requires knowing precisely who is doing what. It requires knowing who is in charge for every project, initiative and goal. It requires awareness and flexibility.
The more directly the position actualizes business goals, the more valuable the position, and therefore, the higher the compensation potential.
Think “Pay for Impact” rather than “Pay for Performance”.
3. Lastly, relevant skills matter
Not only does the proximity of the position to the business goal matter when determining compensation potential but we also need to consider critical (or relevant) skills.
Again, seems simple on the surface. And again, watch out for subtle nuances.
Relevance is relative. In many cases, especially in customer-centric business models, the knowledge and skills (and here I’m referencing the KSA model) do not matter.
What do matter are the abilities (the competencies).
The most relevant skills are what we also refer to as transferable skills. These are the skills that allow an employee to flex with the needs of the customer. The best employees are always (and I don’t often use such a definitive word) developing and honing their transferable skills.
Holacratic organizations thrive with team members who are adaptable, creative, socially aware, dynamic, intuitive, and continue to evolve. And a Holacracy rewards these types of individuals to the top of the charts.
The Pendolino Group recently engaged with several fast growing organizations to help them redesign their: Compensation, Training and Development, and Performance Management programs to transform from traditional, hierarchical structures to fluid, dynamic and customer-celebrated structures.
Join us for a free webinar on this topic and others in the coming months.
Want to know more? We can help your organization transition to a Holacratic model with ease. Call us at our Bay Area office on (888) 726-1414 for more information.
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