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How should
people be paid?
Question # 1
Should a fixed price be set?
Using single fixed prices is economically inefficient.
To the extent that there are variations in how
different customers ...
http://www.mckinsey.com/insights/marketing_sales/setting_value_not_price
For which
services would
you like to pay
more – a...
Question # 2
Can the customer pay
what he / she thinks the
service is worth?
http://sloanreview.mit.edu/article/when-customers-help-set-prices/
http://paneracares.org/what-we-do/
http://qz.com/94447/how-a-restaurant-with-no-cash-registers-and-no-prices-makes-money/
...
At One World Café, people pay
what they think the food is worth.
http://www.innovationexcellence.com/blog/2011/11/27/pay-w...
The British band Radiohead offered their album
"In Rainbows“ on their website according to the
principle pay-what-you-want...
http://mashable.com/2013/03/01/amanda-palmer-wins-ted/
Ask ”how do we let people pay for music”
instead of ”how do we make...
Further inspiration
http://www.scribd.com/doc/36200010/questions-to-discover-your-values
http://www.scribd.com/doc/3486280...
Question # 3
Should the customer
pay for time?
How much per hour?
http://www.imagebase.net/Concept/Evanston-006-copy
Sources
https://www.car2go.com/
http://www.mobility.ch/
http://www.zipcar.com/
At the cafes Tsiferblat
and Anticaf’e, people
pay per minute / hour.
Sources
http://ziferblat.net/
http://www.anticafebabo...
http://blogs.hbr.org/cs/2013/03/why_we_pay_all_our_employees_a.html
At the company Fishbowl, everyone works on
commission....
Question # 4
Should the customer
pay per task?
Sources
http://www.jacando.com/
https://www.mila.com/
http://www.renovero.ch/
http://www.rentarentner.ch/
https://www.task...
Question # 5
Should the customer
pay for use?
http://hbr.org/2011/05/how-to-build-risk-into-your-business-model
Caterpillar charges construction
companies according to ...
Airlines pay Rolls-Royce for an engine’s
flight hours rather than for repair time
and materials.
http://hbr.org/2011/05/ho...
Question # 6
Should the customer
pay for weight?
When flying with Samoa Air, flyers declare
their weight - including luggage - when
booking their tickets and pay an amount...
Obesity is far less under individual control than
generally assumed. It is a result of complex and
diverse drivers of weig...
Question # 7
Does the customer get
some services for free?
Skype has thrived using the freemium model:
 A large base of users use the free, basic platform.
 Some users pay for add...
Question # 8
Can people pay
with other services?
The Merit shop accepts payment for the
objects in the shop in the form of video
submissions showing a particular talent.
h...
On skillharbour, people exchange
skills with other people.
http://www.skillharbour.com/
Question # 9
Can a 3rd party pay for
what the user uses?
Example
Question # 10
Can the customer
buy a subscription?
With the CUPS app, you can walk into any
one of the cafes and use your smartphone
to get a great deal on a cup of coffee.
...
Question # 11
Should the customer
pay a license fee
http://sloanreview.mit.edu/the-magazine/2011-summer/52402/the-business-models-investors-prefer/
Disney has dramatically sh...
Question # 12
Should people be paid
an individual bonus?
Harvard University Professor Roland Fryer, Jr. has
conducted large-scale studies paying students for
reading, grades, vari...
http://www.ted.com/talks/dan_pink_on_motivation.html
When I taught seventh grade English, I frequently gave
stickers to my students. One day I ran out, and informed
my student...
The more you reward
students for doing
something, the more
they tend to lose
interest.
http://www.youtube.com/watch?v=EQt-...
Studies by Edward Deci show that strategies
that focus primarily on the use of extrinsic
rewards do, indeed, run a serious...
I don’t agree that CEO compensation
should be linked to share prices, because
too many different variables can affect
the ...
There is no
correlation
between
CEO pay and
company
performance
http://www.businessweek.com/articles/2014-07-22/for-ceos-c...
http://www.faz.net/artikel/C31151/bmw-personalvorstand-unsere-leute-brauchen-keine-karotte-30029080.html
Wenn man die Boni...
http://www.timothy-judge.com/Judge,%20Piccolo,%20Podsakoff,%20et%20al.%20(JVB%202010).pdf
http://blogs.hbr.org/cs/2013/04/...
Further inspiration
http://www.scribd.com/doc/42321299/Tips-to-Increase-Motivation
Question # 13
Should people be paid an
individual bonus that must
be given to others?
National Australia Bank gave money to people
working for different companies and asked them to
give gifts to each other.
T...
Question # 14
Is paying people to be
creative a good idea?
Edward Deci has found that money does
not work very well to motivate people
over the long term, particularly for tasks
tha...
http://bigthink.com/garyhamel/the-problem-with-employees
Initiative, creativity, and passion, that create wealth
in the cr...
Question # 15
How valuable is it
to praise people?
http://www.psfk.com/2013/11/notes-for-anyone-billboards.html
For a player - for any human being - there is
nothing better than hearing “Well done.”
http://hbr.org/2013/10/fergusons-fo...
Non-financial incentives are more effective than financial incentives
http://www.mckinsey.com/insights/organization/motiva...
Thank you. Great job. I really appreciated your
work on that project.
These words take less than 10 seconds to say.
http:/...
At your next department meeting, see if you
can find someone to praise for:
 Coming up with some great ideas.
 Trying so...
Study shows that it is much better to
praise a child for effort than
for their intelligence.
http://www.nytimes.com/1998/0...
Praising
students for
what they did
and did well
is a good
motivator
http://youtu.be/RzkwtIMPkrs
Minute 36.
http://www.youtube.com/watch?v=HhxcFGuKOys minute 9.
People reported that recognition of their
ideas was a reward in itself. They wanted to
be engaged and to participate.
We t...
Writing handwritten notes
may seem like a waste of
time. But in my experience,
they build goodwill and lead
to higher prod...
Indra Nooyi, CEO of PepsiCo,
sends the spouses of her top
team handwritten thank-you
letters.
http://www.mckinsey.com/insi...
Question # 16
Who should decide how
much people are paid?
A possibility is to let each person in a group
assign a percentage of the total compensation
budget to all the others.
The...
At Gore, people are asked to indicate who’s making
the biggest contribution to Gore’s success.
No specific criteria are pr...
The energy company AES has tested a system that
sets salaries through peer review.
In the experiment, each person sent a p...
It's interesting that the
people most involved with
compensation planning are
the people least involved in
innovation effo...
Question # 17
When should
people be paid?
Many construction firms charge a project
fee and require that
 1/3 be paid up front,
 1/3 be paid at the half-way point,...
What if restaurant guests pay in advance?
https://www.nextrestaurant.com/
http://www.businessweek.com/magazine/content/11_...
Question # 18
Should information
about what people are
paid be shared openly?
http://qz.com/209685/abramson/
An increasing number of companies
are releasing all salary information
to the public.
At Menlo
Innovations,
everyone can see
what everyone
else is getting paid
http://nymag.com/news/features/bossless-jobs-201...
At Whole Foods, everyone knows
what everyone else earns.
http://online.wsj.com/article/SB100014241278873242351045782436730...
http://www.youtube.com/watch?v=gJkOPxJCN1w
People working for Semco have access
to information about the company’s
revenue...
Question # 19
How large should
differences in pay be?
At Whole Foods, the top 7 executives
get the same pay and bonus.
And total cash compensation for those at
the top is cappe...
In the USA, emotional well-being levels
increase with salary levels up to a salary
of USD 75,000. Afterwards, they plateau...
Further sources of inspiration
http://blogs.hbr.org/2014/06/dont-offer-employees-big-rewards-for-innovation/
http://blogs....
Thank you for your interest. For further inspiration
and personalized services, feel welcome to visit
http://frankcalberg....
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How should people be paid?

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How should people be paid? 19 questions.

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  • Hi Patrick, Thanks for your valuable comments. Very interesting thoughts. I agree with you that people are different. In this blog posting http://blogs.wsj.com/management/2009/03/24/the-facebook-generation-vs-the-fortune-500/ Gary Hamel brings forward 12 important points to reflect on for all of us. Each one of the 12 points deserves, I think, to be reflected and acted upon. They represent, I think, a wake-up call for a number of managers and employees working for companies in different industries. Mr. Hamel writes, for example, at # 11 that 'it’s obvious that human beings will give generously of themselves when they’re given the chance to contribute to something they actually care about.' I think it's great that many people are very happy to share information on, for example, Twitter, Facebook, blogs, XING, slideshare, and other Web 2.0 tools.
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  • Hi Frank,

    Nicely done! You are raising some important issues in your presentation. For me the big issues with performance based pay are: 1. money is not an incentive for everbody and everything. Companies should think hard, if monetary incentive system really bring out the character traits they are looking for or rather the opposite. 2. In the 21st century complexity is the norm, markets and business environments are highly dynamic. How to you set clear and unambilavent goals in a time like this? I'm not suggesting that it's not possible but it's very hard and it takes a real effort.
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Transcript of "How should people be paid?"

  1. 1. How should people be paid?
  2. 2. Question # 1 Should a fixed price be set?
  3. 3. Using single fixed prices is economically inefficient. To the extent that there are variations in how different customers value products, selecting one number implies that those prepared to pay more in effect receive a discount; those willing to pay less - but who are still profitable - are turned away. http://sloanreview.mit.edu/article/when-customers-help-set-prices/
  4. 4. http://www.mckinsey.com/insights/marketing_sales/setting_value_not_price For which services would you like to pay more – and why?
  5. 5. Question # 2 Can the customer pay what he / she thinks the service is worth?
  6. 6. http://sloanreview.mit.edu/article/when-customers-help-set-prices/
  7. 7. http://paneracares.org/what-we-do/ http://qz.com/94447/how-a-restaurant-with-no-cash-registers-and-no-prices-makes-money/ http://youtu.be/1ju8-agpCAQ
  8. 8. At One World Café, people pay what they think the food is worth. http://www.innovationexcellence.com/blog/2011/11/27/pay-what-you-like/ http://online.wsj.com/article/SB10001424052970204358004577030412609729608.html Example # 2
  9. 9. The British band Radiohead offered their album "In Rainbows“ on their website according to the principle pay-what-you-want. About 37% percent paid. And they paid so much that the band was satisfied. http://www.brandeins.de/magazin/das-gute-leben/zahl-doch-was-du-willst.html http://sloanreview.mit.edu/article/when-customers-help-set-prices/ Example # 3
  10. 10. http://mashable.com/2013/03/01/amanda-palmer-wins-ted/ Ask ”how do we let people pay for music” instead of ”how do we make people pay for music.”
  11. 11. Further inspiration http://www.scribd.com/doc/36200010/questions-to-discover-your-values http://www.scribd.com/doc/34862800/Values
  12. 12. Question # 3 Should the customer pay for time?
  13. 13. How much per hour? http://www.imagebase.net/Concept/Evanston-006-copy
  14. 14. Sources https://www.car2go.com/ http://www.mobility.ch/ http://www.zipcar.com/
  15. 15. At the cafes Tsiferblat and Anticaf’e, people pay per minute / hour. Sources http://ziferblat.net/ http://www.anticafebabochki.ru/ http://www.psfk.com/2014/01/pay-per-minute-cafe-london.html http://operationsroom.wordpress.com/2013/01/14/paying-by-the-minute-at-a-coffeehouse/ http://www.npr.org/2013/01/10/168632183/rubles-for-minutes-not-mochas-at-russian-cafe-chain http://www.business-opportunities.biz/2013/03/21/free-coffee-at-a-pay-by-the-minute-cafe/
  16. 16. http://blogs.hbr.org/cs/2013/03/why_we_pay_all_our_employees_a.html At the company Fishbowl, everyone works on commission. A developer or member of a support team may go to the sales department, for example, to say, "I have an extra half hour. Is there anything I can do to help you finish a sale?"
  17. 17. Question # 4 Should the customer pay per task?
  18. 18. Sources http://www.jacando.com/ https://www.mila.com/ http://www.renovero.ch/ http://www.rentarentner.ch/ https://www.taskrabbit.com/
  19. 19. Question # 5 Should the customer pay for use?
  20. 20. http://hbr.org/2011/05/how-to-build-risk-into-your-business-model Caterpillar charges construction companies according to the amount of earth moved.
  21. 21. Airlines pay Rolls-Royce for an engine’s flight hours rather than for repair time and materials. http://hbr.org/2011/05/how-to-build-risk-into-your-business-model
  22. 22. Question # 6 Should the customer pay for weight?
  23. 23. When flying with Samoa Air, flyers declare their weight - including luggage - when booking their tickets and pay an amount per kilo. http://www.economist.com/blogs/gulliver/2013/04/heavy-passengers http://samoaair.ws/
  24. 24. Obesity is far less under individual control than generally assumed. It is a result of complex and diverse drivers of weight gain, including genetics, medications, stress, depression, addictions, eating and sleeping disorders and gut bugs – to name just a few. http://www.kevinmd.com/blog/2013/06/charging-passengers-pound-unfair.html Problem with charging for weight of people
  25. 25. Question # 7 Does the customer get some services for free?
  26. 26. Skype has thrived using the freemium model:  A large base of users use the free, basic platform.  Some users pay for additional options, for example the option to call landline numbers. http://www.mckinsey.com/insights/business_technology/competing_in_a_digital_world_four_lessons_from_the_software_industry
  27. 27. Question # 8 Can people pay with other services?
  28. 28. The Merit shop accepts payment for the objects in the shop in the form of video submissions showing a particular talent. http://www.psfk.com/2013/12/merit-shop-pay-with-talent.html#!qf8Pl
  29. 29. On skillharbour, people exchange skills with other people. http://www.skillharbour.com/
  30. 30. Question # 9 Can a 3rd party pay for what the user uses?
  31. 31. Example
  32. 32. Question # 10 Can the customer buy a subscription?
  33. 33. With the CUPS app, you can walk into any one of the cafes and use your smartphone to get a great deal on a cup of coffee. http://cupsapp.com/
  34. 34. Question # 11 Should the customer pay a license fee
  35. 35. http://sloanreview.mit.edu/the-magazine/2011-summer/52402/the-business-models-investors-prefer/ Disney has dramatically shifted its business model over the last 20 years from renting physical assets like theme parks (65% of revenue in 1984 but only 30% in 2009) to licensing intellectual property (15% of revenue in 1984 but 63% in 2009).
  36. 36. Question # 12 Should people be paid an individual bonus?
  37. 37. Harvard University Professor Roland Fryer, Jr. has conducted large-scale studies paying students for reading, grades, various behaviors, and test scores. The results indicated positive outcomes, especially for paying students to learn specific skills. http://www.psychologytoday.com/blog/who-we-are/201005/motivating-students-learn
  38. 38. http://www.ted.com/talks/dan_pink_on_motivation.html
  39. 39. When I taught seventh grade English, I frequently gave stickers to my students. One day I ran out, and informed my students that there will be no stickers for a few days. A riot ensued. ”Where's my sticker?” ”I want a sticker!” ”I won't do anything without a sticker!” I discovered they had become addicted to stickers. http://www.edutopia.org/blog/reward-fraud-richard-curwin
  40. 40. The more you reward students for doing something, the more they tend to lose interest. http://www.youtube.com/watch?v=EQt-ZI58wpw http://www.alfiekohn.org/teaching/tcag.htm Alfie Kohn
  41. 41. Studies by Edward Deci show that strategies that focus primarily on the use of extrinsic rewards do, indeed, run a serious risk of diminishing rather than promoting intrinsic motivation. http://www.rug.nl/gmw/psychology/research/onderzoek_summerschool/firststep/content/papers/4.4.pdf http://blogs.hbr.org/cs/2013/04/does_money_really_affect_motiv.html
  42. 42. I don’t agree that CEO compensation should be linked to share prices, because too many different variables can affect the stock price. For example, it is very important for us to reduce our carbon footprint dramatically. In the short term, however, the market won’t understand. http://www.strategy-business.com/article/10410?pg=all Vineet Nayar
  43. 43. There is no correlation between CEO pay and company performance http://www.businessweek.com/articles/2014-07-22/for-ceos-correlation-between-pay-and-stock-performance-is-pretty-random
  44. 44. http://www.faz.net/artikel/C31151/bmw-personalvorstand-unsere-leute-brauchen-keine-karotte-30029080.html Wenn man die Boni zur Motivation braucht, fördert das eine schädliche Entwicklung für das Unternehmen. Harald Krüger BMW
  45. 45. http://www.timothy-judge.com/Judge,%20Piccolo,%20Podsakoff,%20et%20al.%20(JVB%202010).pdf http://blogs.hbr.org/cs/2013/04/does_money_really_affect_motiv.html Several studies show that there is less than 2% overlap between pay and job satisfaction levels. In other words, you cannot buy engagement with money.
  46. 46. Further inspiration http://www.scribd.com/doc/42321299/Tips-to-Increase-Motivation
  47. 47. Question # 13 Should people be paid an individual bonus that must be given to others?
  48. 48. National Australia Bank gave money to people working for different companies and asked them to give gifts to each other. Teams that received prosocial bonuses performed better after receiving the bonuses than teams that received money to spend on themselves. http://blogs.hbr.org/2013/10/the-bonus-employees-really-want-even-if-they-dont-know-it-yet/
  49. 49. Question # 14 Is paying people to be creative a good idea?
  50. 50. Edward Deci has found that money does not work very well to motivate people over the long term, particularly for tasks that involve creativity. http://www.time.com/time/nation/article/0,8599,1978589-2,00.html#ixzz0krFBzRx8
  51. 51. http://bigthink.com/garyhamel/the-problem-with-employees Initiative, creativity, and passion, that create wealth in the creative economy, cannot be commanded
  52. 52. Question # 15 How valuable is it to praise people?
  53. 53. http://www.psfk.com/2013/11/notes-for-anyone-billboards.html
  54. 54. For a player - for any human being - there is nothing better than hearing “Well done.” http://hbr.org/2013/10/fergusons-formula/ar/4 Sir Alex Ferguson
  55. 55. Non-financial incentives are more effective than financial incentives http://www.mckinsey.com/insights/organization/motivating_people_getting_beyond_money
  56. 56. Thank you. Great job. I really appreciated your work on that project. These words take less than 10 seconds to say. http://www.forbes.com/sites/victorlipman/2013/02/09/in-praise-of-praise/
  57. 57. At your next department meeting, see if you can find someone to praise for:  Coming up with some great ideas.  Trying something new.  Challenging the conventional way of thinking.  Bringing an external idea into the company.  Collaborating with a different department or organisation.  Taking a risk.  Making something happen. http://www.bqf.org.uk/innovation/2010/04/06/praise-the-behaviours-you-want-to-see/ Paul Sloane
  58. 58. Study shows that it is much better to praise a child for effort than for their intelligence. http://www.nytimes.com/1998/07/14/science/praise-children-for-effort-not-intelligence-study-says.html
  59. 59. Praising students for what they did and did well is a good motivator http://youtu.be/RzkwtIMPkrs Minute 36.
  60. 60. http://www.youtube.com/watch?v=HhxcFGuKOys minute 9.
  61. 61. People reported that recognition of their ideas was a reward in itself. They wanted to be engaged and to participate. We therefore involved people in presenting their ideas to senior management. http://sloanreview.mit.edu/the-magazine/2011-winter/52210/the-5-myths-of-innovation/
  62. 62. Writing handwritten notes may seem like a waste of time. But in my experience, they build goodwill and lead to higher productivity. Sources Douglas R. Conant, former President and CEO of the Campbell Soup Company. http://blogs.hbr.org/cs/2011/02/secrets_of_positive_feedback.html http://youtu.be/9buGE_vKxcc
  63. 63. Indra Nooyi, CEO of PepsiCo, sends the spouses of her top team handwritten thank-you letters. http://www.mckinsey.com/insights/organization/increasing_the_meaning_quotient_of_work
  64. 64. Question # 16 Who should decide how much people are paid?
  65. 65. A possibility is to let each person in a group assign a percentage of the total compensation budget to all the others. The average of these numbers then determines each person’s actual compensation. Malone, Thomas W.: The Future of Work, p. 67.
  66. 66. At Gore, people are asked to indicate who’s making the biggest contribution to Gore’s success. No specific criteria are provided. An associate typically is evaluated by 20-30 peers and will evaluate 20-30 peers. http://www.mixprize.org/story/innovation-democracy-wl-gores-original-management-model
  67. 67. The energy company AES has tested a system that sets salaries through peer review. In the experiment, each person sent a proposed salary for himself or herself to everyone else in the group. Malone, Thomas W.: The Future of Work, p. 67.
  68. 68. It's interesting that the people most involved with compensation planning are the people least involved in innovation efforts. http://innovateonpurpose.blogspot.com/2010/07/why-compensation-models-work-against.html Jeffrey Phillips
  69. 69. Question # 17 When should people be paid?
  70. 70. Many construction firms charge a project fee and require that  1/3 be paid up front,  1/3 be paid at the half-way point, and  1/3 be paid upon completion. http://www.inc.com/guides/price-your-services.html
  71. 71. What if restaurant guests pay in advance? https://www.nextrestaurant.com/ http://www.businessweek.com/magazine/content/11_15/b4223098867567.htm
  72. 72. Question # 18 Should information about what people are paid be shared openly?
  73. 73. http://qz.com/209685/abramson/ An increasing number of companies are releasing all salary information to the public.
  74. 74. At Menlo Innovations, everyone can see what everyone else is getting paid http://nymag.com/news/features/bossless-jobs-2013-6/index1.html
  75. 75. At Whole Foods, everyone knows what everyone else earns. http://online.wsj.com/article/SB10001424127887324235104578243673073627726.html
  76. 76. http://www.youtube.com/watch?v=gJkOPxJCN1w People working for Semco have access to information about the company’s revenues and costs – including wages of everyone who works for the company.
  77. 77. Question # 19 How large should differences in pay be?
  78. 78. At Whole Foods, the top 7 executives get the same pay and bonus. And total cash compensation for those at the top is capped at 19 times the average. http://online.wsj.com/article/SB10001424127887324235104578243673073627726.html
  79. 79. In the USA, emotional well-being levels increase with salary levels up to a salary of USD 75,000. Afterwards, they plateau. http://www.pnas.org/content/early/2010/08/27/1011492107.abstract http://blogs.hbr.org/cs/2013/04/does_money_really_affect_motiv.html
  80. 80. Further sources of inspiration http://blogs.hbr.org/2014/06/dont-offer-employees-big-rewards-for-innovation/ http://blogs.hbr.org/cs/2012/09/how_to_find_out_what_customers_will_pay.html http://blogs.hbr.org/cs/2010/01/is_your_business_model_a_myste_1.html http://blogs.hbr.org/2013/11/when-selling-digital-content-let-the-customer-set-the-price/ http://blogs.hbr.org/cs/2013/02/why_good_better_best_prices_are_so_effective.html http://www.innosight.com/images/BMI%20Chart%20063008.pdf http://www.zeit.de/2008/21/III-Kunst_-Interview-Anderson?page=2 http://rcs.seerinteractive.com/money/ http://www.resultsfromcrowds.com/wp-content/uploads/2011/12/Crowd_Business_Models.pdf
  81. 81. Thank you for your interest. For further inspiration and personalized services, feel welcome to visit http://frankcalberg.com/ Have a great day.

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