Is crowdsourced pay the secret to fair renumeration? Is crowdsourced pay the secret to fair renumeration?

Is crowdsourced pay the secret to fair renumeration?
21 Nov 2018

Workplace power dynamics are shifting rapidly at the moment. In particular, a noticeable distrust of traditional ‘command-and-control’ management styles is starting to emerge.

According to our WorkHuman Analytics Research Institute’s (WARI) 10th International Employee Survey, which was based on the views of 3,600 workers in the UK, Ireland and North America, employees want to work for fairer, more open and transparent organisations these days. Within this context, they are even becoming more open to the idea of crowdsourced pay, where feedback from peers and colleagues has an influence over how and when they are compensated.

But to understand the reasons behind this shift in sentiment, it is important to look at some wider societal and economic trends. On an economic level, employment rates are at the highest they have been for many years. Therefore, with more employment opportunities on offer, some employees at least feel they can afford to be more discerning in their choice of both career and employer. 

In addition, movements such as #MeToo and #TimesUp have transformed the news agenda and, with it, our collective social conscience. Clearly not every manager abuses their position of power, but by calling out bad behaviour in the workplace, these movements have contributed to a new belief that the traditional office culture – where bosses call the shots and employees do as they are told – has had its day. 

Traditionally, compensation has been a subject that was only discussed behind closed doors. In many cases, it was not even discussed at all. Instead, managers would simply tell employees what their compensation would be.  

Indeed, many employers considered that if a staff member discussed their pay with a colleague, it was suitable grounds for termination. Today, largely thanks to legislative pressure and a high-profile societal push towards pay equity though, this situation is starting to change.

Introducing transparency

Even so, many employees still blame the pay gap problem on a traditional top-down approach to management, in which line managers still wield most of the power over pay decisions and there is little transparency or wider accountability. As a result, some 39% of women feel that they are unfairly compensated in their current roles compared with only 30% of men.

The discrepancies are even more pronounced in the case of one-off and annual bonuses though. In the UK in particular, men are three times more likely than women to receive a bonus in excess of £5,000 (US$6,405).

But while most HR processes have been modernised these days, pay discussions are still largely stuck in the past. This is where crowdsourced variable pay comes in as it offers a relatively simple way to bring decision-making processes around pay up-to-date, while helping to redress workplace imbalances at the same time. 

By allocating a small portion of the total payroll to crowdsourced approaches - which include social recognition where staff are compensated based on feedback from their peers and co-workers - employers can reward numerous employees at multiple times during the year. Taking this tack is proven to have a much bigger impact than offering people lump sum bonuses, which reward the few rather than the many and quickly fade from a recipient’s memory.

But crowdsourced pay is not just about making recipients feel good. It also offers significant and lasting benefits for employers too.

Happy, well-motivated and fairly-rewarded staff tend to be more productive. To illustrate the point, one question asked in this year’s WARI survey was: ‘Would you work harder if you received monetary awards crowdsourced from your colleagues?’

Interestingly, a sizeable majority of young workers, and even those in their 30s and 40s, were open to the concept. About 73% of 18 to 24-year-olds and 71% of those aged between 25 and 34 answered ‘yes’. While support declined with age, even in the 35 to 44-year-old age bracket, 61% said they would be motivated by this approach. 

How crowdsourced pay works

So it would seem that, if implemented correctly, crowdsourced pay can successfully combine peer feedback, employee recognition activity and variable compensation policies. As to how crowdsourced pay works, it is firstly necessary to allocate a small percentage of the payroll budget as variable compensation. 

Secondly, employees are given the ability to grant each other micro-bonuses in the form of points that can be swapped for merchandise or gifts – although these bonuses must always be accompanied by a statement of why the award is merited.

This simple system of recognition is gratifying to both giver and recipient alike. Co-workers often know who the top performers within their teams are anyway, but this process helps ensure hidden stars are identified, appropriately recompensed and acknowledged by the wider business.

Another benefit of crowdsourced pay is that it also encourages better collaboration and teamwork. According to further WARI research, receiving US$100 in peer-to-peer points has more than three times the impact on reducing staff turnover than giving than people US$100 in cash – not least because it reflects what employees actually want.

Because reward points can be redeemed for merchandise or gift cards chosen by staff members themselves, they tend to be more memorable than cash rewards, which frequently end up going on routine items, such as paying for the monthly groceries or clearing a credit card bill. Moreover, the speed at which the reward is disbursed also helps to determine the intensity of the response – and giving points is generally much quicker than cash compensation.

Crucially though, adding crowdsourced pay to compensation structures does not necessarily mean increasing a company’s total payroll budget. This type of variable pay can be self-funded by simply redistributing various existing pots, such as bonuses or incentives, where the return on investment is not clear-cut.

Taking such an approach tends to make the concept easier to ‘sell’ to senior management, particularly as it can also help boost staff retention levels. But getting it right is likely to require a shift in organisational mindset. This is because crowdsourced pay must be implemented as part of a wider strategy based on fairness and in which recognition of everyone’s individual input and contribution is paramount. 

 Derek Irvine

Derek Irvine is senior vice president of client strategy and consulting at Globoforce, where he leads the company’s insight consulting division. He helps clients exploit proven recognition strategies and best practice to boost employee engagement, increase retention and improve bottom-line results. A renowned speaker, he is also author of the ‘Recognize This!’ blog and co-wrote two books, ‘Winning with a Culture of Recognition’ and ‘The Power of Thanks’.

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Workplace power dynamics are shifting rapidly at the moment. In particular, a noticeable distrust of traditional ‘command-and-control’ management styles is starting to emerge.

According to our WorkHuman Analytics Research Institute’s (WARI) 10th International Employee Survey, which was based on the views of 3,600 workers in the UK, Ireland and North America, employees want to work for fairer, more open and transparent organisations these days. Within this context, they are even becoming more open to the idea of crowdsourced pay, where feedback from peers and colleagues has an influence over how and when they are compensated.

But to understand the reasons behind this shift in sentiment, it is important to look at some wider societal and economic trends. On an economic level, employment rates are at the highest they have been for many years. Therefore, with more employment opportunities on offer, some employees at least feel they can afford to be more discerning in their choice of both career and employer. 

In addition, movements such as #MeToo and #TimesUp have transformed the news agenda and, with it, our collective social conscience. Clearly not every manager abuses their position of power, but by calling out bad behaviour in the workplace, these movements have contributed to a new belief that the traditional office culture – where bosses call the shots and employees do as they are told – has had its day. 

Traditionally, compensation has been a subject that was only discussed behind closed doors. In many cases, it was not even discussed at all. Instead, managers would simply tell employees what their compensation would be.  

Indeed, many employers considered that if a staff member discussed their pay with a colleague, it was suitable grounds for termination. Today, largely thanks to legislative pressure and a high-profile societal push towards pay equity though, this situation is starting to change.

Introducing transparency

Even so, many employees still blame the pay gap problem on a traditional top-down approach to management, in which line managers still wield most of the power over pay decisions and there is little transparency or wider accountability. As a result, some 39% of women feel that they are unfairly compensated in their current roles compared with only 30% of men.

The discrepancies are even more pronounced in the case of one-off and annual bonuses though. In the UK in particular, men are three times more likely than women to receive a bonus in excess of £5,000 (US$6,405).

But while most HR processes have been modernised these days, pay discussions are still largely stuck in the past. This is where crowdsourced variable pay comes in as it offers a relatively simple way to bring decision-making processes around pay up-to-date, while helping to redress workplace imbalances at the same time. 

By allocating a small portion of the total payroll to crowdsourced approaches - which include social recognition where staff are compensated based on feedback from their peers and co-workers - employers can reward numerous employees at multiple times during the year. Taking this tack is proven to have a much bigger impact than offering people lump sum bonuses, which reward the few rather than the many and quickly fade from a recipient’s memory.

But crowdsourced pay is not just about making recipients feel good. It also offers significant and lasting benefits for employers too.

Happy, well-motivated and fairly-rewarded staff tend to be more productive. To illustrate the point, one question asked in this year’s WARI survey was: ‘Would you work harder if you received monetary awards crowdsourced from your colleagues?’

Interestingly, a sizeable majority of young workers, and even those in their 30s and 40s, were open to the concept. About 73% of 18 to 24-year-olds and 71% of those aged between 25 and 34 answered ‘yes’. While support declined with age, even in the 35 to 44-year-old age bracket, 61% said they would be motivated by this approach. 

How crowdsourced pay works

So it would seem that, if implemented correctly, crowdsourced pay can successfully combine peer feedback, employee recognition activity and variable compensation policies. As to how crowdsourced pay works, it is firstly necessary to allocate a small percentage of the payroll budget as variable compensation. 

Secondly, employees are given the ability to grant each other micro-bonuses in the form of points that can be swapped for merchandise or gifts – although these bonuses must always be accompanied by a statement of why the award is merited.

This simple system of recognition is gratifying to both giver and recipient alike. Co-workers often know who the top performers within their teams are anyway, but this process helps ensure hidden stars are identified, appropriately recompensed and acknowledged by the wider business.

Another benefit of crowdsourced pay is that it also encourages better collaboration and teamwork. According to further WARI research, receiving US$100 in peer-to-peer points has more than three times the impact on reducing staff turnover than giving than people US$100 in cash – not least because it reflects what employees actually want.

Because reward points can be redeemed for merchandise or gift cards chosen by staff members themselves, they tend to be more memorable than cash rewards, which frequently end up going on routine items, such as paying for the monthly groceries or clearing a credit card bill. Moreover, the speed at which the reward is disbursed also helps to determine the intensity of the response – and giving points is generally much quicker than cash compensation.

Crucially though, adding crowdsourced pay to compensation structures does not necessarily mean increasing a company’s total payroll budget. This type of variable pay can be self-funded by simply redistributing various existing pots, such as bonuses or incentives, where the return on investment is not clear-cut.

Taking such an approach tends to make the concept easier to ‘sell’ to senior management, particularly as it can also help boost staff retention levels. But getting it right is likely to require a shift in organisational mindset. This is because crowdsourced pay must be implemented as part of a wider strategy based on fairness and in which recognition of everyone’s individual input and contribution is paramount. 

 Derek Irvine

Derek Irvine is senior vice president of client strategy and consulting at Globoforce, where he leads the company’s insight consulting division. He helps clients exploit proven recognition strategies and best practice to boost employee engagement, increase retention and improve bottom-line results. A renowned speaker, he is also author of the ‘Recognize This!’ blog and co-wrote two books, ‘Winning with a Culture of Recognition’ and ‘The Power of Thanks’.

OTHER ARTICLES THAT MAY INTEREST YOU

Trends 2018: What's new in pay and rewards?

Why pay transparency makes sense

Pay transparency becomes new normal in UK