“The moment of critical mass, the threshold, the boiling point.1” This is how Malcolm Gladwell describes the tipping point. It is the moment when things truly change and return to the prior state becomes hard, or even impossible. Responding to major changes like these tend to drive evolution or revolution. The results can be more volatile than expected and occur more quickly. There have been many compensation-related changes happening over the past couple of decades. I make the case for five elements that may be nearing a tipping point.
1. Pay for Performance.
Pay for performance is incredibly popular right now. I am one of its biggest proponents. But, as the use of P4P rises, so does the lack of verification of effectiveness, structure and communication for these programs. There is real potential for the abject failure of these programs as a whole. P4P is filled with potential risk. Failure will likely be seen in angry employees and struggling companies.
2. Pay Disparity.
It has been almost one hundred years since we have had wealth disparity in the United States like we are currently experiencing. Not all of the disparity is driven by pay, but as the wealth gap has grown, so has the pay gap. We are already seeing attention from the media, scrutiny from the government and discontentment among employees. While the first two get the most attention, it is the employees who will drive the tipping point. Unless they are given some path to correction, they will find a more volatile way to drive change.
3. Retirement Shortfalls.
The way we currently look at retirement has been around for just about the same amount of time as our oldest citizens. These senior people had a lot of help in preparing for retirement and we still have huge problems with poverty among the elderly. It is expensive to be alive. The shortfall between retirement funds versus needs has been well documented. We have built a society where people live a long time and can do so knowing that they are supported by funds that were designated long ago. As retirement funding changes and social security fails to keep up with the cost of living, will we see new “families” where employees spend as much time and effort supporting their parents as they do their children? Can the two-income work structure we have built support this additional need for time and money?
4. Pay Survey Use.
Pay surveys are useful ingredient in delivering proper pay. But, like sugar, overuse can be unhealthy. The flaws of the data and how we use it have been documented for years. Search on the term “survey” on this site and you will see what I mean. Pay surveys help make our decisions “feel” better. Sometimes at the expense of them actually “being” better. Are we prepared for the moment when the overuse of surveys becomes a rallying cry for those people outside of our profession?
5. Equity Compensation.
Many of you know that I believe equity compensation is an incredibly important element of pay. But, like other forms of pay for performance, it has often been used without a thorough understanding of its impact. The growth of equity compensation easily aligns with the growth in executive / employee pay disparity. Pay disparity is itself nearing a potential tipping point. Without thoughtful planning and better use of equity compensation, we may see it disappear like so many other formerly useful pay programs (defined benefit plans anyone?).