Influence of organizational culture on compensation…
The months of July and August brought us a great deal of news about how much people are getting paid for what they do. As a society, we are in agreement about little on this topic - and most importantly about whether executive compensation should be connected to the overall health of our economy. Some of the highlights include:
- talk of big bonuses at Wall Street banks
- debate about “guaranteed bonuses” for folks no matter how they perform
- concern about excessive pay in general for business executives
But the most concerning news from an organizational culture perspective, is that these headlines were reinforced by a recent executive compensation study called – “Balancing Risk, Performance and Pay.” The Study looked at compensation practices for 2008 and 2009 at two-hundred (200) of the largest companies that comprise the S&P 500 Stock Index. And in short, the most telling finding is that there is a shift away from long-term incentives that focus on the overall health of a business and more focus on short-term incentives to increase cash flow and stock price.
These findings about the big companies took my breath away, so I decided to call a colleague who works in compensation for small to medium-sized companies and heard something different. His take is that companies are focusing more on “how” to pay people rather than on “what” to pay them. He talked about how companies are looking for ways to manage their compensation as a form of investment – both in their people and in their company for the long-term.
My experience is that organizations have been struggling with how to structure compensation for many years. The underlying cultural beliefs of organizations guide their compensation decisions, and they are varied and not easy to shift. During the last ten (10) years, there clearly has been more of a desire to link pay with performance. Though, the reality is that the U.S. is not as merit-based in our compensation practices as our national myths about democratic principles would like us to think.
Here are some recent quotes from leaders about their organizations’ compensation practices and beliefs that highlight the range of realities.
- Salaries are low here, but benefits are good – just need to put in your time and pay increases incrementally
- Not much difference between compensation for those who do stellar work & those that do OK work – pay increases based on a bell-curve
- Our management failure is that we don’t truly recognize performance – it is all about “who you know”
- Results are often valued more than the means – it doesn’t really matter how you get there – you just have to get there
Though no matter the variety of underlying beliefs, it is apparent that our push as a society to accelerate growth, by linking individual pay to performance caused some organizations to become short-term focused. The allure of personal gain overwhelmed the complex task of including into individual compensation packages – objectives for the long-term health of a company and for our economy in general.


