THE RISK IN CHANGING THE PAY SYSTEM: THE PHONE CENTERS

By Peter Block

Years ago, AT&T put many stewardship practices into place in its phone centers to put choice and control of the business close to the customer. One of the reforms addressed the pay system for store managers. At the time, there were over four hundred phone centers, with standard job descriptions and pay scales for store managers and salespeople. Both were evaluated by their bosses and got raises accordingly. The average pay for a store manager was the equivalent today of about US$70,000.

The head of the phone centers, Bob Martin, wanted to foster the attitude that each store operated as its own business. He decided to restructure the store managers’ pay so they could make two to three times their current pay if the store did well, but would get no increase if the store did not meet its targets. The store managers would also have to take a cut in pay to get on this system. Any store managers who did not want to live under this system were encouraged and supported to pursue jobs elsewhere in the AT&T system, which is what many did. The key measurement for pay increases was also changed from store sales to store profitability.

Two years later, over 60 percent of the store managers decided they did not want to live with the insecurity of this entrepreneurial system, even though some of them made the equivalent of US$150,000. They did not want the uncertainty.

Creating a pay system aligned with the intent of having people at all levels be responsible for the success of the organization may not be a welcome or popular strategy, even though it may be the right thing to do. The benefit of what Bob did with the pay system in the phone stores was to reinforce the message he was sending about the change required to save that business. Everyone got the point that safety first was not going to be a winning strategy. The downside was that it was Bob’s new pay system –– no one else owned it.

After a year or so of wrestling with the situation, Bob created a team of store managers to devise a pay system that fit an entrepreneurial business strategy. He did not ask consultants or the internal specialists to design it. They were available to help but not held responsible for the new system. Ownership of the pay system was the central issue, and a team of people redesigning their own pay system was the right response. The store managers made a few changes to Bob’s original system, they reaffirmed its basic fit to their situation, and the new structure settled into place and served them well.

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Changing the pay system is always risky business. It is clear that we need those who will live under a new system to struggle with the complexity of changing it. It is rare that specialists can do a better job of designing a change than the employees who will have to live under the new deal. In the case of pay, it is more difficult since we are all so neurotic about pay in general that most of us would rather make the system we have be more generous than search for outcome-based but higher-risk alternatives.

The experience in the AT&T phone centers and many other organizations shows the benefit of having people redesign their own pay systems, using clear guidelines that require the new system to honor the well-being of the whole organization, to spread equity, and to bring an end to the class system. People do not give up privilege easily, unless they make the choice to do so. It is also clear that raising morale is not the purpose of changing the pay system, for as many people will be unhappy with the new system as with the old one.

 

Adapted from Stewardship: Choosing Service over Self-Interest, 2d ed. (San Francisco: Berrett-Kohler, 2013).