The challenge to hierarchy
If pay practices continue to move toward contribution as the basis for earnings, as I believe they will, the change will unleash a set of forces that could transform work relationships as we know them now. To illustrate, let's look at what happens when organizations take modest steps to make pay more entrepreneurial.
A surprising example comes from government-even more surprising because it began in the 1980s, before public attention turned to the need to reinvent government. The city of Long Beach, California, established a pay-for-performance system for its management as part of a new budgeting process designed to upgrade the city government's performance against quantifiable fiscal and service delivery targets. Under the new system, manag ers could gain or lose up to 20% of their base salaries, so the pay of two managers at the same level could vary by up to $40,000. Job category and position in the hierarchy we far weaker determinants of earnings. Soon there were people in lower ranks paid more than the city manager.
While the impact of a system like this on productivity and entrepreneurship is noticeable, ils elreet on work relationships is more subtle. People don't wear their paychecks over their name badges in the ofice, after all. But word does get around, and some organizations face the problem of envy head-on. In two different companies with new-venture units that offer equity participation,