Organizational culture is best described by the behavior patterns and collective values commonly shared by its employees and serves as a road map, a point of reference on the company’s modus operandi. Compensation practices shape culture and culture shapes compensation practices. Ideally, the company’s compensation model should reflect the collective values it propagates, because in most cases people will primarily comply with guidelines related to compensation practices rather than follow implicit values. Eventually, disregarding the connection between the two will lead to behaviors that are mostly appreciated by leaders during the assessment of one’s individual salary development.
Clan and Adhocracy cultures encourage internal cooperation, making an egalitarian salary distribution their method of choice.
So, lets briefly summarize the four most common categories of organizational structure and the interrelationship between their respective culture types and pay model:
Clan Culture is best defined by a non-bureaucratic, internally focused, flexible, collaborative, family-oriented value system favoring egalitarian compensation practices rather than those based on merit. Senior staff act as mentoring coaches, nurturing loyalty and encouraging participatory teamwork.
Adhocracy Culture is externally focused, promoting a flexible, decentralized leadership which encourages teamwork, risk-taking and quick, creative decisions. Adhocracy Culture is egalitarian as well, though employees may be rewarded for their creativity and innovation.
Simply put, organizations with Clan and Adhocracy cultures are more adaptable and organic by nature. Inherently more interdependent than process-focused organizations, they encourage internal cooperation within its workforce, making an egalitarian salary distribution their method of choice.
...hierarchical cultures offering significant pay increases for individual performance, whereas market cultures prioritizing tenure and loyalty.
Market Culture is externally focused, extremely competitive and combative by nature, promoting profitable short-term goals and increased market share. Market Culture is everything but egalitarian or collaborative, rewarding its employees based on distinct, individual accomplishments.
Hierarchy Culture, bureaucratic by nature, is internally focused, keeping a tight control over its workforce in order to ensure efficiency and stability. Pay distribution is on an individual basis, taking mainly into account loyalty and tenure, rather than individual performance.
In contrast Hierarchy and Market cultures are not so much into collaborative teamwork, with the hierarchical cultures offering significant pay increases for individual performance, whereas market cultures prioritizing tenure and loyalty - the common denominator being both employing a hierarchical salary distribution.
Employees in a particular organizational culture often share similar visions, objectives, and habits - to establish a good relationship between employees and management, the compensation system should ideally reflect these characteristics.
Didier Elzinga, CEO of the employee experience platform Culture Amp sheds a light onto these two distinct pay models: Egalitarian and Hierarchical.
An Egalitarian compensation structure is best described by little pay disparity within each pay level, thus promoting teamwork and fairness. This is a trending model as companies transform and move fast, hence require from their staff to adapt quickly to current needs, ideally in a collaborative approach as a team. Performance might be understood as engagement or even positive attitude towards the challenges at hand; how the work gets done is more crucial than the kind of work that gets done.
The Hierarchical pay model on the other hand is often characterized by its significant salary gaps within or between salary levels favoring individual performance. Those models also have way more pay levels than its egalitarian counterpart. Whether this is related to size of organization and granularity in their level structure, it is easy to assume that salary bands will be manufactured to account for roles held by individuals who might not “fit in” otherwise. Companies tend to be slower in adopting to changes; given systems and practices are usually not redesigned but rather strained to account for anomalies. In those cultures, performance is measured based on pre-defined targets. With a focus on lean process design and efficiency, tasks, activities and outcomes are planned precisely and well in advance, given employees little room for the creative process in pursuing their work. How the job is done is secondary.
Food for thought
Ideally, the compensation framework is dependent upon, and should match, the company’s organizational structure. But what if the proclaimed organizational model is not applied in its purest form, resulting in an inconsistency between its messaged values and expectations vs. the way companies reward their employees?
A mismatch between culture and pay will cause disengagement, conflicts and misalignment across the leadership teams. Employees and leaders are left in limbo, creating their own narrative and exchanging myths of what is being honored and rewarded vs. what is being communicated.
What is the bottom line? Which collective values are being shared then? Is collaboration the name of the game? Is it competition? And what if a company adopts, either randomly, or by force of circumstances, multiple organizational cultures?
In the digital age, new companies are built as conglomerates of two or more essential cultures. Every new digital product entering traditional markets will need to attract employees from successful competitors in their field. Imagine the diversity of combinations, such as medical and tech, pharma and tech, banking and tech or any other random combination in this manner. Ideally, a new hybrid culture might result from blending the challenger and the establishment.
More commonly, organizational cultures adapt during phases of transformation or growth. This adaptation might happen when pairing groups of new hires with long standing employees or introducing new functions with respective experts to teams. Employees feel responsible in shaping the organizations’ current success and will defend the methods and techniques used so far. Newbies are hired to either build new or extend the capabilities in the function. Their perspective and mindset related to the business and its opportunities, their motives and their methods might differ tremendously from the employee with longer tenure.
When a company expands, its organizational structure inadvertently changes and becomes increasingly complex.
…What then? Do we want to impose a particular culture on the company and create a salary model which matches it? Or should we better find out how the organization perceives its own culture? In what way may it have already changed? Which new opportunities have emerged as a result?
Within all areas of work, employees have their distinct, individual perceptions, which only in their sum will ultimately reveal the overall picture. Keeping this in mind, an open dialogue within the group, encourages involvement, empowers commitment, and inspires shared responsibility. By facilitating those participatory workshops, I witnessed many times that discussions go beyond the current pay model and are perceived by the participants as eye-opening experience. They might share their understanding of performance and pay, how quickly their team members get to develope and take on responsibility, how feedback is being shared within their groups, and how they deal with shortages of resources. This participatory approach will ultimately prove more effective and sustainable than merely creating a survey on salary and culture and helps to facilitate a smooth transition to an optimal compensation framework that respects what actually is, and not what should be.
Author: Sarah Maximilian, Picture: Unsplash.com