If you have ever seen John Frehse, a labor strategist, of Ankura Consulting Group present, you know he’s half comedian, half thought leader which always makes for an entertaining and educational session. One of his more recent grabbers is (and I’ll paraphrase here in a much less comedic fashion) describing how search engines are not your friend. Why? They provide access to information in a useful format. This may seem like a great service but in doing so they allow all your employees to see what everyone else makes and often they realize that they are not making as much as they could elsewhere. This creates a wide range of uncomfortable conversations for leadership.
The services provided by Glassdoor and Indeed and search engines such as Google have commoditized wages. Just like the price of pork bellies, a job title/description is tied to a wage and the highest wage advertised gets the most inquiries. These “wage transparency” companies provide a great service and balance some of commoditization with reviews and rankings. But let’s face it the compensation analysis is where everyone goes first.
When a product is commoditized what do producers and service providers do? They work hard to differentiate by bundling in other offerings that haven’t been commoditized. How does that work when it comes to compensation? John comes to the rescue with the thought leadership portion of his presentation. And while this concept isn’t new, John’s years of experience may add a couple of ideas that you hadn’t thought about. These are his top 12 currencies that employees value:
- Fringe Benefits
- Feeling Valued*
- Work/Life Balance*
- Decision Rights*
- Access to Information*
- Investments in training
- Time Off
- Structured mentoring*
- Leadership enabled success*
- Merit based promotions
*Indicates categories that can be cost free
What I especially like is that all these wage alternatives benefit the company as well as the employee. Additionally, while these (aside from cash and fringe benefits) are free or low cost at scale, a number of these will take effort at executing. And when I see “effort to execute” I think sustainable differentiated advantage. In other words, most companies will look at that list and say to themselves…isn’t it easier to perform a market compensation analysis and justify higher wages to your executives to combat a retention and recruiting issue? You bet it is, but unless you are the company offering the highest wages, your commodity (e.g. wages) can easily be beaten by just a few cents more an hour. Those that invest in John’s multi-currency strategy will have lower burdened rates, a more engaged workforce and better fiscal performance. Your company becomes stickier to employees when improved work/life balance strategies are employed because it means employees not only have to change their place of employment but that their family will have to change its lifestyle too.
Ok, I get it, that strategy may be worth 10-20% difference in wages but what about when you have those things in place and the gap is still too big?
At KronosWorks this year I had the chance to speak with Jeff Mike, VP, Human Resource Research at Bersin. He had an interesting idea around cash wages. Why not emulate an idea from digital natives such as Uber and Lyft and introduce the concept of surge pay. At first I was a little incredulous…isn’t that similar to overtime? Then Jeff’s brilliance struck me. While it’s a very similar concept to overtime, overtime serves two masters. It’s an excellent tool to flex your workforce from a company perspective but because it is also an FLSA regulatory protection to prevent companies from taking advantage of employees and often used in union agreements to protect their members from the same. It is not a perfect tool for aligning labor with demand. One might also think surge pay is like shift premiums, but shift premiums are a dull axe when a scalpel is required. Surge pay can be a finely tuned compensation tool to make the value proposition more attractive to employees for working during busy times when they might otherwise choose to be doing something else.
How might surge pay work?
Think about a retailer who struggles to entice employees to show up on weekends. As an example of the problem they face, the chart below shows the hours and percent of unplanned absence by day of week at an individual store of a well-run retailer. It’s a version of the same chart I see at most retailers. Why is that? Because many employees don’t want to work weekends when most others are not working.
Ride services such as Uber use surge pay to bring more capacity online (drivers available for rides). In this case surge pay entices employees to work when they otherwise might not want to. This is not simply a weekend premium. What we have learned from the surge fare is that it can be finely tuned to the situation. Maybe a store has great employee availability Saturday mornings but not Saturday afternoons, surge pay can be adjusted for that. Maybe it’s a slower season, the store can stand a little absence, so no surge pay in January and February. How about an unexpected surge in traffic one afternoon and the manager wants a couple of people to stay…Rather than force the manager to ask someone to stay who might otherwise have plans, surge pay automatically increases until someone signs on. This also works with the emerging schedule predictability legislation in several cities. One of the common exceptions to last-minute company driven changes that incur a penalty is when the employee initiates the schedule change to earn the surge pay.
Ride services use historical demand and supply signals such as number of rides delivered, local fares, time of day, traffic, current requests and the available pool of drivers to determine if and how much a surge fare is applied. Similar signals such as employee availability, the predicted customer traffic, special events, acceptance rates when surge pay is used and unplanned absences can determine surge pay timing and rates. Policies could be introduced and automatically applied so that if a higher premium pay is already being earned, stacking of premium and surge wages is not performed.
A common objection from executives would likely be that employees would become accustomed to surge pay and be less engaged or not come to work unless it is offered? One could use that argument that with any type of premium pay. What is unique about surge pay is that because of the many different factors that would be used to calculate it along with historical participation with differing levels of surge pay, it would not be as predictable as current types of premiums. Or it could be used as a carrot…only employees with minimum levels of scheduled hours and high levels of attendance are eligible.
Variable compensation used to shape employee behavior is not new. Surge pay is a new technique to shape behavior that is low risk for employees and for companies all with the intent of providing an improved customer experience.
Digital natives such as Google, Amazon and Uber are using information to create innovative new offerings that are turning the tables on legacy companies. They are using real-time analytics and machine learning to adapt to myriad different situations while delivering new and efficient services. Current compensation techniques are difficult to adapt to a dynamic future. Human Resources and other executives involved in managing a workforce need to be thinking and acting like these innovative companies. If you find yourself competing with the employer down the street while living on tight margins, take a second look at the ideas shared by Jeff and John and start innovating your compensation plan.
What do others think? Let me know.
Gregg Gordon oversees the analytics, data science, and big data focused group at Kronos. He is the author of Lean Labor: A Survival Guide for Companies Facing Global Competition and Your Last Differentiator: Human Capital.