Ever wonder how inflation is related to economic freedom? Check out the video below for a quick primer on inflation.
(Via EconomicFreedom.org)
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This is a great video and I wholly understand the topic. My main concern is that, yes a perfect economy would not have inflation, but ours does. The MBM philosophy of compensation, while very valid in my eyes, can not possibly address this. It is one thing to pay more based on performance but when that is left up to inidividual managers, who may or may not be doing this correctly, inflation can really hurt the employee. If there is no standard base raise to cover inflation how can employees continue to be prosperous in their own lives when things like kids going to college and other events are slamming them with additional costs?
It is a misunderstanding to say the MBM compensation philosophy does not allow us to think about and take into account inflationary forces. It does – just not in the same mindless way that other compensation philosophies do.
First, I want to be clear about one thing: supervisors do not make compensation decisions. They make recommendations which then are reviewed through a robust challenge process. Employees are not at the “mercy” of their supervisors.
The MBM compensation philosophy actually gives great flexibility when it comes to adjusting wages. As you probably know, inflation can be greatly uneven throughout the country. Price changes related to things like cost-of-living will vary throughout states/counties/so on. While there is no blanket increases to account for inflation, people making decisions about compensation have many things to think about, including inflation/cost-of-living.
Make no mistake, all compensation decisions are made by humans. Other philosophies can make mistakes about inflation as well (it’s a tradeoff – there’s no perfect system). Imagine working for a company that gives cost-of-living increases based off of a country average, but you live in a place where housing has increased double what the average is…
The key to the MBM compensation philosophy is what I like to call “win-win” situations. While individual contribution is the most major influence on compensation decisions, it is certainly not the only thing. I recently heard a seasoned MBM supervisor say that when he makes compensation recommendations he considers 30+ factors. Supervisors/decision makers get support from the HR community to help them better understand things like market forces, inflation and other macro-factors.
Thanks for your comment – it’s these types of comments that allow some deeper discussions about issues that people care about.
I have worked with organizations that took significant austerity measures in compensation costs by suspending all merit pay increases and multiple year cost of living adjustments. I have also worked under contract where personal contribution had no real impact on compensation because standardized cost of living adjustments were negotiated two to four years out. The driving factor was always economic but primarily due to company profitability. There was no consideration for the rising cost of living or inflation. Compensation is one form of incentive, which can influence our motivation and overall engagement. At times it rewards us for performance and at other times it challenges us to improve. Considering the application of MBM, which model of compensation actually creates longer term value? Suspending all increases for extended time periods can be very demotivating and can threaten organizational performance. In the same way, automatic, inflation-based adjustments, can become an entitlement, often leading to mediocrity in performance. Depending on one’s virtues and talent, it would seem that an MBM compensation philosophy provides the best opportunity for contribution calibration and eventual fulfillment.