Digitization and transformation towards more agile organizations are influencing the relationship between employer and employee. Employees are increasingly expecting participation in the company’s success. But how do owners, Board members, and managers define and measure success? And, how can success be best shared with key employees?
At the recent HCM Expert Breakfast in Zurich, Dr. Stephan Hostettler, Nadine Balmer, and Oliver Akeret highlighted the dynamics within this relationship, explained different solutions on sharing success and showed possible compensation systems to implement a shared success model.
To describe the shifts in the relationship between company and employee, Oliver Akeret differentiated three main trends. First, Industry 4.0 – characterized by artificial intelligence, big data and an enormous exchange of information – requires companies to continuously update processes with the common goal of offering highly differentiated customer-specific products. Secondly, in order to maintain its competitiveness, companies are adapting their organizational structures towards flatter hierarchies. As a result, companies increasingly need to be flexible offering shorter communication paths that enable quick coordination and adaptation to a rapidly changing environment. Finally, a generational shift is observable with Generation Z entering the labour market and representing as much as 50% of the workforce by 2030. Generally, members of Generation Z are more individually oriented and have a broader variety of expectations from their employer.
Considering the aforementioned trends, it becomes clear that the relationship between company and employer is undergoing profound transformations which inevitably lead to three questions: What is success? How can success best beshared with employees? Are traditional management systems able to reflect the dynamics in the relationship between company and employee?
To answer this question, Nadine Balmer introduced two different perspectives on success. From a company’s point of view, it can already be challenging to define success internally. Often, among Board members, owners and management, one can identify up to 30 different definitions of “success” using numerous key performance measures. Once success is defined, companies typically focus on the level of profit with the premise:
the higher the better. However, is it enough to view and define success financially? What about the quality and the sustainability of such results? What happens if in the following year are statement of the financial report is needed or fluctuation rates peak because of low employee satisfaction? These qualitative measures are equally important to focus on when defining sustainable success of an organization.
However, while the maximization of financial measures may make sense, qualitative measures are not per se to be maximized. An often-seen qualitative measure is employee satisfaction. This unarguably needs careful attention. However, a 100% satisfaction rate may be too costly and not even reachable, i.e. overall not worthwhile from a business perspective. Hence, qualitative measures shall set the framework in which quantitative success can be achieved . From a Board and owner view, it is therefore important to consider the quality of this profit in a systematic approach.
From an employee’s point of view on the other hand, success within an employment relationship can take many different forms. Increasingly, employees of the younger generations not only seek compensation in line with the market, but also a agreable corporate culture and development opportunities that are independent from pay. Employees want to be more and more part of an interacting team with common goals. This often includes the desire to not only to participate in the company’s success, but to be a part of it. Therefore, owners, Board members and the management have to ask themselves to a greater extent on how they can share success with their key employees.
Dr. Stephan Hostettler presented the different shapes and forms of possible compensation systems and frameworks that offer success sharing. He shared insights through several examples of implemented success sharing plans that comply with both the company’s perspective as well as the employees’ expectations. It became clear that success sharing with employees can be a strong tool to further strengthen the relationship between the company and their employees.
Furthermore, the variety of existing success sharing compensation systems clearly demonstrates that while there are no one-size-fits-all systems, a tailored solution is available to each company’s specific situation and background. Companies need to be aware that today's compensation systems must be as agile as the companies that implement them and the employees who are offered these systems.