Navigating Rewards beyond Employment

The Lead the Work framework can help you understand what's going on in these examples and how to use it to rethink how you reward your workers. The framework describes three vital questions:

1. How small a time frame to shorten? Are the rewards built on the idea that the relationship will endure for a long time, or are they built to reflect a relationship that is short term and changeable?
2. How specifically to individualize? Are the rewards meant to fit into a single system that is applied to all workers, or can they provide different arrangements for different groups or even for specific individuals?
3. How creatively to imagine? Do the reward elements include only traditional things like pay, benefits, work conditions, health, and security, or do they encompass nontraditional elements such as prestige, purpose, reputation, and fun?

With regular full-time employment, the dials on these dimensions are turned to the left. Rewards are long term, part of a single system for all, and traditional. This makes sense when workers and their employer are willing to assume they will be together long enough to reap the long-run benefits (such as a pension fund or vested stock options), if the relationship is similar across jobs and workers, and if workers don't require nontraditional elements.

However, with more alternatives to regular full-time employment, combined with workers that are increasingly accustomed to customization and constant improvement in products, services, and lifestyle, there are more opportunities, if you're willing to dial the dimensions to the right. Leaders like Harrison have built entire successful businesses in part because they moved the dials to the right. Leading the work requires that you consider whether you can improve your work reward equation in ways that give workers more of what they really want, and often in a way that costs you less.

How Short the Time Frame?

In a world beyond employment you see lots of examples of rewards that are extremely short term. MTurk rewards its taskers as soon as they finish tagging a set of pictures. Tongal and Topcoder reward their freelance designers and coders as soon as the client approves the result or chooses a winner from the contest. It's easy to fixate on the timing of the rewards—how fast they are delivered as the work is done—but that's only part of the answer. The more important and fundamental question is whether you design rewards that assume or require a long-term relationship or a short-term one. Traditional reward systems for regular full-time employees are often constructed based on the implicit assumption that workers will stay. Rewards such as stock options that only vest if you stay five years, pension-fund matches that only build up if you stay a long time, and career paths that materialize with long tenure are just a few examples. As we have seen, it's not that long-term work relationships will completely go away, but it is increasingly difficult for either workers or clients to count on a long-term relationship. The world changes too fast and too unpredictably. Thus, even traditional companies have mostly shifted from an employment deal that assumes long-term employment for good performance, to something more like a commitment to do their best to help workers remain qualified as things change, with the understanding that if things change too much, anyone is expendable. Many companies long ago started shifting from defined benefit pension plans that reward a lifetime of service with a guaranteed income after retirement, to defined contribution plans where the company contributes some fixed amount while the worker is employed, and the accumulated nest egg is portable to other companies.

By necessity, the reward structure of free agents reflects the reality of a short-term relationship and the need to allocate rewards immediately. For free agents impermanence is a fact of life: they go from gig to gig. Each gig is a separate relationship, not expected to last beyond that one project. The reward deal must reflect the reality of that short-term relationship, and it can change with each project. Even a free agent organization can twist the dials to get to the right time frame. Tongal wanted to extend their relationship with their talent community beyond a single project, so it introduced the Seasons bonus rewarding a longer-term relationship. That was a smart move that shows the value in understanding the reward relationship you need, and being creative in finding a way to deliver it.

Many writers lament the loss of “good jobs” that lasted a lifetime and provided high levels of income security. Yet framing this as a loss misses the point. Instead, we can think of the time frame of rewards as something that leaders optimize based on their situation. With the right strategic situation, a company might differentiate themselves because they are willing to offer relative security of employment (see the case of SAS later in this chapter). Even Tongal, a platform that gathers 70,000 free agents, builds in some security for their talent community by working hard to bring in enough “winnable” work so that a good performer can feel confident they can earn a decent amount of work year after year. The rewards of money and reputation are given as soon as a project is complete, but even Tongal has reward elements that may last a long time.

One reason for building long-term rewards is that a worker is motivated to look beyond the immediate project to consider longer-term implications and connections. Many believe that long-term incentives like stock options, deferred bonuses, and so forth foster a sense of ownership and an appreciation for the long run. Long-term incentives don't need to disappear just because job security has. In the entertainment industry, free agents like television actors and songwriters can get royalties that extend far beyond the initial engagement. There's no reason one couldn't construct rewards for free agents that pay out past the end of the assignment based on whatever measures of success matter to the company.

Can you create a long-term approach to rewards when work reflects specific projects that must be paid on delivery and may change over time? One way is to see your relationship with the worker as renewable. If an organization has received good work from a free agent, they will want to continue to work with them. Once you find a good worker and the worker finds they want to work for you, it is efficient to return to that worker for future projects. It's easy to think that this requires that the worker be employed, to guarantee that they are available when those future projects arise. However, you can also accomplish this by being the “project of choice,” not the “employer of choice.” Many free agents work repeatedly for the same client for just this reason. Just because the worker and the client don't get married, it doesn't mean they can't go steady.

Impermanence creates challenges that in the past have been confined to workers like rock stars: you are only as good as your last record. Many writers have noted that all workers, whether they be free agents or employees, must increasingly take responsibility for their own capability and their own brand. Being CEO of Me means continually staying on your game and being prepared for turbulence. When the work-worker relationship is more short term, income will be variable and uncertain, and that becomes a fact of life to be managed. Those who fail to manage it—like the rock stars that squander wealth in the good times—will suffer for it. Risk expert Nicholas Taleb recommends the barbell risk strategy. With this strategy, you get some of your income from low-risk, low-reward ventures and some from high-risk, high-reward ventures. The idea: build a kind of safety net, freeing yourself to take on some risky ventures.

How small should you shorten the time frame of rewards? As we've seen, the answer depends on your situation and objectives. The important thing is to recognize that you have choices. You can dial up and dial down the time frame to optimize the work. It's not simply a matter of choosing between rewards that require a long-term relationship and those that assume immediate and short-term relationships. It's not simply a matter of recognizing that an increasingly volatile and unpredictable world makes it hard to fashion rewards when you can't predict the future. In an age when organizations are generally making the rewards less permanent, organizations may carve out unique market niches by offering selected elements of permanence in their rewards. Thus, your challenge may be to recognize not only how to craft rewards that don't rely on the assumption of permanence, but where you can offer elements of permanence that make sense for you, and make you unique in a work environment increasingly crafted to be nonpermanent.

How Specifically to Individualize?

The foundation of most traditional compensation systems is that the system applies to all the employees. This is reflected in collective bargaining and legislation. Even when not required by legislation, reward systems are often designed to fit the tradition of regular full-time employment. Systems reflect a principle of “pay for the job, not the person.” Market surveys are used to estimate what workers in similar jobs are paid elsewhere and then compa-ratios calculate the average pay in a job divided by that market rate. Within the organization, rewards systems focus on aligning rewards across different jobs to achieve both internal and external equity. Of course, even traditional reward systems offer some differentiation. Individual pay varies somewhat within a job, depending on things like tenure and performance. Some jobs (such as sales) have a greater amount of pay based on incentives than regular salary. High-potential employees may receive different development opportunities than others. Yet, even these variations are subject to the overarching reward system, designed to apply to all the employees. Even when variations exist, the idea is that they exist within a system that applies similarly to all workers.

A vital role of HR systems is to preserve fairness in rewards, and that often translates into ensuring that every individual is included in the same rewards system, that everyone is treated similarly within that system, and that any differences in rewards between individuals are carefully assessed to prevent bias, and to ensure that they can be explained. This makes sense in a world of regular full-time employment, because it is expected that workers will remain for a long time, that they will interact and compare their rewards with each other, and that they must know that in the long run they will reap the rewards that others receive when they eventually take those jobs or perform at those levels.

These are laudable goals, yet all leaders have experienced situations where the system creates a tendency simply to reward all workers similarly, perhaps to avoid any appearance of bias or simply to avoid difficult discussions with workers about why some workers get something different from others. A good example is the well-documented tendency for managers to give performance ratings and incentives that are clustered at the middle, making only small distinctions for performance, skills, or individual needs and desires.

Contrast this with the world of free agents. It is much more individualized. Free agents and their clients craft reward elements that are best suited to the individual workers. In addition, because the relationship is not expected to last a long time, and because the worker and the client know that it is an individual arrangement, there is much less expectation that the system used to define the rewards for one free agent must be consistent with the system used to define rewards for another. With free agents there is much less pressure to have a “set in stone,” “same for all” system. It becomes easier to tune the reward for the specific individual, project, or task. It becomes easier to experiment, because how you reward free agents this week does not need to extend to next week.

Leading the work means understanding these distinctions, but it means more. It is not as simple as using individualized rewards for free agents and collectively consistent rewards for regular full-time employees. In a world beyond employment, employees look more like free agents, and they will be more open toward (and perhaps more demanding of) individualized treatment. In Chapter 1, we mentioned the case of a brand strategy VP who has been allowed to remain president of his own consulting firm. That company broke the mold a bit, making an exception in this case, as a way to retain valued talent. You won't be able to turn the dial up on individualized rewards for employees as far as you can for free agents, but you can certainly turn the dial up from zero.

Individualizing rewards integrates with other dimensions of the Lead the Work framework. When you deconstruct work it is feasible to pay each part appropriately. For example, the job of managing a website might be deconstructed into design (high value and therefore high reward), content management (medium value and therefore medium reward), and routine maintenance (low value and therefore low reward). In an organization where all those tasks are lumped into the job of “website manager” then the reward will be less finely tuned.

Individualized rewards are often a reflection of a change in negotiating power that comes with deconstruction, dispersal, and impermanence. We have seen that when the work can be deconstructed into tangible deliverables, performance differences across individuals become much more visible to everyone, workers and clients alike. Freelance platforms like Topcoder, Tongal, and Upwork work hard to measure and track performance levels, and to celebrate the best. That means that the best performers know who they are, and their value is public. In a world of individualized rewards, savvy high performers will negotiate rewards that reflect their true value. Indeed, the leaders of talent platforms tell us that one reason the best performers are attracted to freelance work is that their rewards are specifically not limited by organizational reward systems. Many traditional reward systems certainly reward high performers more. Yet, on a talent platform, the performance and rewards of top performers can be many times that of average performers. It is a rare organization whose pay system would accommodate paying high performers five or ten times as much as others doing the same job.

An advantage of individualizing rewards is that you pay no more than necessary for a given parcel of work. Yet, managing differentiated rewards across a wide variety of tasks can increase the administrative and mathematical complexity of the reward package far beyond traditional systems that set rewards based on a finite set of defined jobs. It becomes even more complex if you also allow rewards to vary with the individual qualifications and desires of each worker. This complexity may lead organizations to turn the dial on individualization down, even for free agents, and even for tasks that have been deconstructed. This is a challenge for HR leaders and the HR profession, to optimize the individualization, and not reject important opportunities simply because the current systems cannot deal with the complexity.

How to Optimize Individualizing Rewards: Watch the Curves

How should organizations “solve” for the right amount of individualization in the amount, differentiation, and cost of rewards? When should you dial up individualization, and when should you dial it down? Thinking of three curves can be helpful:

1. The curve that shows how different work performance levels relate to organizational value, called “return on improved performance” (ROIP)
2. The curve that shows the number of workers at each different performance level, called the “performance distribution”
3. The curve that shows how different work performance levels relate to the cost of the rewards needed to motivate that performance, called the “cost of improved performance”

The interplay of these three curves helps you decide how to optimize the cost and return to individualization. Figure 9.1 shows three examples.

In Figure 9.1, the top graph shows that every increase in the value of performance provides a similar positive benefit for the organization. The middle graph shows the distribution of performance as a bell curve. The bottom graph shows that the cost to motivate higher performance is also a straight line, such as when performance incentives are paid based on sales levels. In this situation, the objective is to make the middle group better, and because the ROIP and cost curves are linear, it's probably possible to set up one system that applies to everyone. If a worker performs better, they get a linear increase in their reward, and that relationship is the same for everyone. A piece-rate pay system in a production line would fit this model. These assumptions are often implicit in most reward systems, even though they are only one of many possible situations. Assuming that this is the situation across all jobs, projects, and work can lead to missed opportunities.

Figure 9.2 shows a very different situation, where individualizing rewards for top performers is actually not optimal.

In Figure 9.2, we have changed the ROIP curve at the top. Now, increasing performance from very low to where it reaches a certain standard has a high payoff, but once that standard is achieved there is little value in going beyond it. Examples include filing tax forms, piloting commercial aircraft, or basic cleaning. The key is to avoid low performance and mistakes, but not to strive for excellence beyond the standard. As in Figure 9.1, the cost of the rewards in Figure 9.2 is shown as a straight line in the bottom graph. High performers still demand more. However, in this case, there is very little advantage to differentiating rewards for high performers. Dialing up differentiation in this case is far less valuable, particularly among workers who are already at standard.

Finally, the third set of curves shown in Figure 9.3 shows a situation where individualization and differentiation should be dialed up to a very high level. It is typical of many situations where regular full-time employment simply cannot accommodate the needs of the work.

In Figure 9.3, the top graph shows an ROIP curve where the value of high performance is far greater than that of moderate or low performance. This situation occurs in work that is very creative or where the right answer to a problem is extremely valuable, while moderately creative or partially correct answers are not. For example, in creating an Internet advertisement, the vast majority of ideas are not very effective, but if you can find the idea that goes viral or becomes a catch phrase, the value is exponentially higher than for average ideas. The middle graph in Figure 9.3 is different from Figures 9.1 and 9.2, and shows a distribution of workers that is very different from a “normal curve.” There are a large number of workers who would be low performers, and a few who are extremely high performers, which might be typical of situations where those who can create a winning idea or solve a thorny riddle are rare. Finally, the bottom graph shows that the cost of motivating low or moderate performance is relatively low, but the cost of motivating high performance is much higher, such as when the elite designers or Internet videomakers know how valuable and rare they are.

In this situation, extreme individualization makes sense, with high performers receiving more rewards and a reward package that is highly tailored to their individual desires. It's worth it because the value of that rare performance is huge, and because those who can deliver it are so rare.

You don't have to be able to measure and draw the curves precisely for them to help you lead the work by optimizing how much you individualize. Many organizations find it helpful simply to categorize their work according to whether ROIP and the cost of improved performance are highly sloped or flat, and whether the distribution of performance is a bell curve or something different. The point is that whether work is done by employees, free agents, alliance partners, outsourcers, or by other means, fitting individualization of the reward to the work can reveal important opportunities for you. This challenges leaders to get involved in optimizing individualization, and the HR profession to prepare systems and capabilities to advise and support those leaders.

How Creatively to Imagine the Reward?

Being imaginative about rewards is one of the great opportunities for organizations to offer employees more while spending less. A world beyond employment makes imaginative rewards more apparent and more appropriate. It was freelance platforms and crowdsourcers that most visibly demonstrated that lots of folks would work for the sheer enjoyment of the game or the reputation for being the smartest puzzle-solver. It is easier to be imaginative when rewards are more individualized. It is easier to experiment when reward elements are not expected to endure. Yet, even with regular full-time employment you can dial up the imaginative scale, to consider rewards beyond those that are most traditional. In his book The Purpose Economy, Aaron Hurst struck a nerve, suggesting that the “currency” of the economy may well be individuals' desires for meaning in their work.¹ Certainly companies with products that save lives or improve health have long understood the power of such nontraditional rewards.

Here's a list of rewards ranging from those that are traditional to emerging rewards that are more imaginative:

• Money: There is no question that the money will remain important, including how it is delivered and for what purpose. While “show me the money” is unlikely to be irrelevant, limiting your leadership to thinking about how to allocate money will miss many options.
• Reputation: People want to be the known as the best in their field, the winner of the contest with their name in lights. Reputation serves a function in improving a person's ability to acquire work in the future, but it is also an end in itself. In traditional systems, special titles such as “Research Fellow” are used to recognize top inventors or scientists.
• Glamour: Some roles are inherently glamorous, whether it's being a rock star or working with movie stars, or being part of a project sending space probes to the stars. The job of professional cheerleader carries lots of glamour, even though it involves long hours and low pay. Being a professional cheerleader may also pay off in launching higher-paying careers in modeling or acting. Yet, even without those potential rewards, professional sports teams would still easily attract people to fill cheerleading positions thanks to the glamour inherent in the role.
• Meaning: Meaning or significance has been recognized as a fundamental motivator among workers for more than 75 years. People can find meaning in work as varied as saving the environment to helping others to being excellent in one's own craft.
• Learning: The opportunity to learn is a powerful reward, partly because it increases future earning opportunities, but also as an end in itself. There is an intrinsic pleasure in mastering something that was at first difficult. Indeed, evidence suggests that workers are willing to trade off money for learning opportunities. This is particularly true when the learning can clearly drive career advancement and even mobility to future work. In Towers Watson's Global Workforce Study, which looks at what drives employee engagement, attraction, and retention, among other things, career advancement has been among the top three drivers of why employees join a company since 2008.²
• Community: People strive to belong, and being part of an “in group” is a powerful motivator in both work and life. When work is seen as a sign of being a member of a community that one desires to be a part of, that can be a powerful motivator. Indeed, people typically perceive the group they see as their “in group” as being smarter, more attractive, and more honest.
• Discretion and control: When they can, workers naturally gravitate to the work they enjoy. Having a choice can be reward in itself. No one likes to feel trapped in doing one sort of work. You can see this vividly in the free agent world, where actors strive to win awards so that they have choices among projects with excellent directors, great fellow actors, and a cool script. Even when the work is less glamourous, choice matters. One of the earliest findings from research about work motivation was that variety and autonomy were key elements. Some retirees work as Walmart store associates, or they do tasks on MTurk, not just for the money but because they find the work entertaining and interesting. They are motivated and content in part because it was their choice.
• Flexibility in time and place: Where you work and when you work has a big impact on the quality of your life. What had traditionally been known as work-life balance is rapidly becoming work-life integration, because both work and life are accessible 24/7 through technology and social connections. This blending of work and life places an increasing value on the flexibility to manage the balance as you desire.

While these rewards are not all new or different, the list matters because the new world of work offers you much greater opportunity to combine and innovate with these rewards than in regular full-time employment. Freelance talent platforms let computer coders, designers, and videomakers do their work in any location; they can accommodate someone's desire to work a few hours a day when it suits them, and to work on the projects that they find most interesting. Traditional employment arrangements might possibly accommodate such an imaginative approach, but they are not built for it. The traditional employment system can tap only the work projects of one organization; it can afford only to build a platform that extends to its most vital locations, and it must not appear to be giving special favors to any one person.

The world beyond employment boasts an impressive capability to free the imagination. Yet, will something be lost? Are any rewards uniquely available or better delivered through traditional employment? The typical candidates include

• Income security
• Career progression
• Pensions
• Health and other benefits
• Community and belonging

Today, these rewards are arguably less available outside traditional employment, but that may be changing. People working outside traditional employment increasingly have options to create the same sort of income security and “career progression” that any company has. If they run a good business, they may feel pretty secure and see the business progress the way they like, whether toward higher income or more interesting work. As for pensions and health benefits, individuals will have to find alternatives, either through governments, cooperative organizations (such as the Freelancers Union in the United States), or private enterprise.

One might argue that community and belonging are the exclusive province of traditional employment. In 1955, the novelist Sloan Wilson lamented the fate of the “man in the gray flannel suit” who had sacrificed his identity to the corporation.³ However, for many people, being an employee of a large corporation is a positive thing. People take pride in being Googlers and IBMers. Individuals often identify with their employer, and organizations go to great lengths to create compelling and desirable company and employment brands. Working for Medtronic means being a part of the company that extends the lives of heart patients and banishes the symptoms of epilepsy. Working for Unilever means being a part of the company that promotes a healthy body image among women worldwide.

The key is to understand that this need not be limited to employment. Every year, an elite group of the free agents who work with Tongal gather to show off their videos, films, and commercials at an award ceremony called the Tongie awards. Just like the Academy Awards, the winners thank their crew, families, and so forth. Unlike the Academy Awards, almost every winner thanks the employees and leaders of Tongal. It is not unusual for a Tongie winner to say, “Thank you for creating a way for me to fund my career” or, “Thank you for creating a way for a small video maker in Kuala Lumpur to pitch an idea to Budweiser.” When Topcoders attend a Topcoder Open they surely wear their Topcoder identity proudly. Foldit volunteers can create a team, and enjoy the camaraderie of tackling a tough problem together. The Bill & Melinda Gates Foundation routinely offers contests to devise things like toilets that can work without water or electricity, things that are sorely needed to improve and save lives in emerging countries.⁴ The contest winners are seldom employees of the foundation but perhaps share as much pride in their affiliation with it as its regular employees.

The Value of the New Rewards for Leaders, Clients, and Workers

Making rewards more individualized, impermanent, and imaginative can bring significant value:

1. Getting talent at lower costs: Imaginative rewards are often nonmonetary, meaning you can attract better talent for the same pay (or the same quality of talent for lesser pay). In addition to saving on pay through imaginative use of rewards, if the work is being done by a free agent offsite then there are also savings in real estate and likely in administrative overhead.
2. Paying only for results: Part of the core value proposition of many talent platforms is that you pay only for results. For example, with MTurk when you pay to have a microtask completed, you do not need to worry about how productive an individual worker is since you only pay for results. Free agents often work the same way and will set a fixed price for a given product or service.
3. Paying only when you have work: One of the main burdens of rewards that are relatively permanent is that you end up paying the worker whether or not there is valuable work to be done. As one turns up impermanence, one naturally ends up paying workers only when there is important work to be done. For situations where workload is volatile, impermanence makes sense.
4. Paying as much as performance is worth, but only what it's worth: When reward systems are not individualized, companies normally end up paying low performers too much and high performers too little. This approach both wastes money and puts the company at risk of losing the best talent. Individualized rewards can be more closely matched to performance; it would be odd to pay one of your employed programmers 10 times as much as the one sitting beside them, however it can be quite natural to pay one free-agent programmer 10 times as much as another. Traditional pay structures assume a long-term employment relationship that calibrates rewards to the average of a relevant labor market, and restricts those rewards to a set range for everyone. Yes, better performers can be paid more, but because the system must endure long employment periods, it typically cannot allow wide differences in rewards among jobs or among individuals in a particular job. In fact, recent Towers Watson research⁵ suggests that pay differentiation has decreased over the past four years, suggesting that organizations are struggling to differentiate between high and low performers in a low inflationary environment.
5. Tapping better talent: Finally, the new rewards may offer ways to attract a quality of talent that may otherwise be unavailable. When you give yourself flexibility in the design of rewards, then even the greatest stars can be seduced. When Chilean film director Alejandro Jodorowsky wanted Orson Welles to act in a film, the iconic Welles showed no interest.⁶ Jodorowsky, knowing Welles's love of food, offered to bring Welles's favorite Parisian chef to the set to cook him lunch. That was an offer Welles couldn't refuse. Your organization may not need the likes of Orson Welles and Parisian chefs, but Jodorowsky's instinct for finding something uniquely valued by star talent was admirable. You also don't have to choose the best and highest-paid performer for every task. If the work requires only moderate capability, platforms like MTurk, Upwork, and Topcoder allow you to adjust your pay level to the qualifications you need and the available supply of talent for that particular task. Again, in a world beyond employment, there is less requirement to justify rewarding high performance less where performance is less pivotal, while others receive higher rewards when they perform very well on more pivotal tasks. In concept, employment systems can also do this, but designing a system equipped to routinely calibrate and explain these differences is difficult, as evidenced by the many organizations who struggle to identify the roles that are pivotal to their business and to differentiate rewards accordingly. In the world beyond employment, just as in casting a movie, the relationship is renewed with each project, offering differentiation opportunities few traditional systems can match.

Individuals will need to learn to navigate this new world and negotiate their way to rewards that suit them. The traditional employment reward is not open to a lot of negotiation; individuals choose an overall package—usually focusing on salary—and live with it for an extended period of time. In a free-agent relationship, however, there's more opportunity to craft an optimal mix of rewards. You can't always get what you want, but the freedom to try is enormous.

One of the common boasts of successful free agents is that they only work with clients they like. If that element of rewards—only working with people you like—is important to you, then it can be pursued in the free agent world much more vigorously than it can within an employment relationship. A free agent who wants 10 weeks holiday a year will have to make trade-offs to get that, but that reward element is on the table if it's what they want to pursue.

In the traditional employment relationship, a worker often had to accept “that's just the way it is,” and maintaining a certain passivity toward the rewards was essential. That passivity will get in the way of making the best of the opportunities that exist in free agent world.

Optimizing the Reward Dials to Lead the Work: Netflix, Foldit, and SAS

We end this chapter by looking at how three organizations—Neflix, Foldit, and SAS—have turned up their reward dials to match their strategy.