THE

EVOLUTION OF
COMPENSATION
FIXING MERIT PAY WITH
TEAM-SET SALARIES

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THE EVOLUTION
OF COMPENSATION

3 The compensation problem

6 How is compensation evolving: A more

human approach to compensation?

7 So what are the problems that every

compensation model needs to address?

9 The obvious candidates

10 Traditional Pay-For-Performance, or Merit
Pay

12 The Self-Set Salary Dilemma

13 The Solution
15 Meet the Team-Set-Salaries

17 What are the results of Team-Set

Salaries?
THE
COMPENSATION
PROBLEM
The compensation market is changing
radically, especially when it comes to
implementing new strategies for company
organization and management, like
Holacracy, Management 3.0, or Teal, to
name a few.

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 It is understandable that compensation,
one of the biggest company expenses,
should be on the table when it comes to
discussing modern workforce solutions;
the current compensation model simply
doesn’t hold up when it comes to
market changes, shifts and
transformations.

Yet renovations are still underway in the

field of compensation. Many companies
are stuck in endless cycles of the
review and reform of old models, most
of which are unproductive.

Moreover, the evolving workforce wants a different

system when it comes to their wages and salaries.
They don’t want to be treated like a cog in the
wheel, but rather, as an irreplaceable part of their
organization— as unique individuals who contribute
to the growth and well-being of the company. In
reality, they want a more modern compensation
model that reflects a more human approach to the
new employee-employer professional relationship.

To succeed in this respect, companies will have to

adapt their approach to compensation and adopt a
new model that satisfies everyone. But that’s easier
said than done.
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There are still many unresolved problems when it
comes to implementing and maintaining these
brand-new compensation models. We discuss
some solutions to such problems here.

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HOW IS
COMPENSATION
EVOLVING: A MORE
HUMAN APPROACH TO
COMPENSATION?
A recent Global Human Capital Trends survey by
Deloitte found that 69% of all organizations
surveyed reported they would like to work on their
compensation models in the next 12-18 months,
notably due to the importance of compensation
models to the success of their business. However,
only 9% indicated they were ready to completely
remodel their compensation plans.

This data tells us that most organizations have

noticed a problem in their compensation models,
and that they understand the impact it creates on
their business success. But they are not yet
prepared to deal with the larger changes their
compensation model will require for future success.
The risk is still viewed as being too great to be
worth taking.
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SO WHAT ARE THE
PROBLEMS THAT EVERY
COMPENSATION MODEL
NEEDS TO ADDRESS?
There are a few to consider:

1 Employees’ desire for transparency when it

comes to their compensation model.

2 Ensuring compensation fairness.

3 The model needs to remove or at least limit the

compensation bias at the workplace.

4 The model needs to properly evaluate and

compensate an individual’s contribution to the
company, without neglecting their
unquantifiable contributions to the success of
the team.

5 The model needs to be adapted to suit worker’s

well-being (instead of promoting a toxic or
stress-filled environment).

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 6 The model needs to be sustainable, so that it
needn’t be changed every few years.

It is not easy for a brand-new model to be already

equipped to deal with all of the above-mentioned
issues from the start. So let’s take a look at some
examples of companies who have successfully
resolved some of these set-backs with their
various models.

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THE OBVIOUS
CANDIDATES
Many companies have been actively working
on modifying their existing compensation
plans, to moderate success. A prime example
is Unilever’s “Framework for Fair
Compensation.” But the issue with Unilever,
as with others, is that they haven’t addressed
the main fundamental problems that
underlie their compensation models, and
will thus be forced to recreate endless less-
successful iterations of the model for years
to come. At best, it’s a band-aid solution for
a broken arm.

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So what are the fundamental problems that underlie
traditional compensation models? The answer is
two-fold: firstly, the problem of the traditional Pay-
For-Performance Model, and secondly, that of an
apparent solution to the compensation problem,
namely Self-Set Salaries. Let’s take a closer look
into the details of these two main issues:

TRADITIONAL PAY-FOR-
PERFORMANCE, OR
MERIT PAY
Pay-For-Performance is the current model recently
causing disruption in many organizations. The main
problem with this model is that it needs to be
endlessly updated to stay relevant.

Three reasons Pay-For-Performance

does not work

Pay-For-Performance only accounts for individual

performance. It can only take into account any
measurable success, creating unhealthy team
competition and a lack of initiative. This model fails
to render profitable any unquantifiable effect
individuals may have on their team — from
communication to culture, morale to motivation —
none of these are considered. 10
Three reasons Pay-For-Performance
does not work

The second problem with Merit Pay is that the

compensation is calculated on a yearly basis, and it
doesn’t provide a motivational factor for
employees. While a good salary will usually not
motivate an employee, a bad one will still definitely
demotivate an employee. The problem here is that
the compensation calculation usually takes so
many factors into account and it’s impossible to do
it more than once a year. So an employee has no
idea how they’re doing until they go to their yearly
performance review that determines their
compensation plan.

The final problem is that Pay-For-Performance

can fall prey to many biases — be it gender,
ethnicity, sexual orientation, or politics — which
can cause severe and unjust discrimination in
an individual’s unique compensation.

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THE SELF-SET SALARY
DILEMMA
An “apparent” solution to the Pay-For-Performance
problem is a model known as Self-Set Salaries,
where individuals are involved in choosing their own
compensation model. However, there are still a few
major issues.

Three reasons Self-Set Salary does not work

Despite the name, employees don’t really get to

choose their own salaries. The model is marketed
as a “set your own salary” process, which is in theory
an honest and open negotiation, but in practice
often ends up sabotages by three factors:

1. A passive-aggressive attitude from the C-level,

pressuring an individual in favor of a lower salary.

2. A feeling of guilt or social discomfort in

accepting a wage that is “too high,” arising from
embarrassment and low self-esteem.

3. Resentment or alienation from peers after

receiving a potentially higher salary.

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Three reasons Self-Set Salary does not work

The mechanisms of setting one’s own

compensation involve many rules and policies that
an employee must negotiate to get a real sense of
their contribution to the team, in order to be paid
accordingly. This is a huge waste of time.

It is near impossible to negotiate a Self-Set Salary

more than once a year, due to the enormous
amount of required time to process the wage of
every single employee.

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THE
SOLUTION
Thankfully, there is a clean solution to all the
problems of Pay-For-Performance and Self-
Set Salaries. Team-Set Salaries are the future
of compensation models for organizations
that want to foster a more humane culture
in their workplaces.

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THE EVOLUTION OF
COMPENSATION: TEAM-
SET SALARIES AS A
SOLUTION
The Team-Set Salaries model (a term initially coined
by Klaus Wuestefeld at Percival.live) relies on one
fundamental question to properly compensate all
employees: “How much of the profit pie does each
person deserve?”

The Team-Set Salaries model asks each employee

to share how they would divide the total
compensation budget amongst themselves and
their peers. The software will take all answers into
account, and divide the pie in the most fair and
equal way possible. This method motivates all
employees to not only produce measurable results,
but also to contribute positively to the overall team
well-being.

In all, the Team-Set Salary (TSS) process is:

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 Fair. Results are perceived by
the team to be justified (and
objectively fair).

Actionable. The result of a TSS

is a numerical value for every
employee.

Collaborative. Employees
cooperate to evaluate each
other and themselves.

Easy to use. TSS is simple,

taking only 15 minutes to
complete.

In this way, Team-Set Salaries resolve all issues of

traditional Pay-For-Performance and Self-Set
Salaries models. It provides actionable insight
through clear, measurable data (a percentage of
the compensation pie). Moreover, the process is so
simple and quick that it can be completed multiple
times a year.
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TSS also helps to avoid spending over budget on
compensation by limiting baseless group raises. It’s
all about dividing the profit pie in the most optimal
way possible, according to all members of the
team: autonomy and collaboration at their finest.

WHAT ARE THE

RESULTS OF TEAM-SET
SALARIES?
We already know how great Team-Set Salaries
sound in theory. But how do they fare in practice?
Let’s take a look at some quick stats from the
company Webgoal, who recently implemented
Team-Set Salaries. They experienced:

A 66.7% reduction in turnover in just two years;

A 9.2% reduction in direct team costs;

Consider how Team-Set Salaries can benefit your

company. For more information about Team-Set
Salaries and how to implement them in your
organization, schedule a demo with Percival to see
how your team can collaborate to profit.

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 .live

Fair compensation
for your agile teams