The OD Quest: Part 4 – Totally Rewarding!

"I don’t have an opening in my OD team now. But, you can join our recruitment team and do recruitment in the OD way”, I heard the Senior HR Leader telling a candidate who was hell-bent on joining the OD team. This was my fifth ‘encounter’ with this gentleman (See 'Passion for work and anasakti ‘, 'Appropriate metaphors for organizational commitment ‘ ,‘To name or not to name, that is the question’ and ‘A Mathematical approach to HR’ for the outcomes of my previous interactions with him).

I was a bit taken aback by what I just heard. I knew that often these kind of ‘solutions’ will end in tears or worse. However, similar to what had happened during my previous encounters with him, this interaction forced me to think a bit more deeply about the underlying issue - the application of OD(Organization Development) to the various functional areas in HR (Human Resource Management). That, in turn, has prompted me to write this series of posts on 'The OD Quest' where we will look at the possibilities  that arise when OD ventures into other parts of the people management terrain.

In the first post in this series (see The OD Quest: Part 1- Mapping the terrain) we did a cartography of the Human Resources (HR) and Organization Development (OD) domains to map out the current world (the terrain) inhabited by HR and OD and also the evolving worldviews in HR and OD (ways of looking at the terrain). In the second post (see The OD Quest Part 2 : Doing Recruitment in the OD way) we made a visit to the land of Recruitment and explored the value OD can add to Recruitment. In the third post (see The OD Quest: Part 3 – Rendezvous with L&D) we covered the Rendezvous with L&D. In this post, let’s take our OD Quest to the land of Rewards that is also known by names like ‘Compensation & Benefits’ (C& B) and by more interesting ones like ‘Monies & Goodies’.

If we look at Rewards essentially in terms of compensation surveys, compensation structures and benefits the possible value addition from OD is not apparent with exception of facilitating deeper discussions around the compensation philosophy (the ‘why’ of what we do in Compensation &a Benefits and its alignment with the company values). However, when we look at Rewards as a tool to drive appropriate employee behaviors to achieve a particular set of business results, the possible value addition from OD  becomes clearer.  

Employee behaviors (and also employee engagement and performance) are driven by the ‘total employee deal’ offered by the company that include (in addition to compensation and benefits) factors like the organization culture, work environment, development & growth, meaning & purpose etc. OD plays a key role in enhancing these aspects. Most importantly, the underlying messages conveyed by the Compensation & Benefits provided by the company must be in sync with the messages conveyed by the other parts of the total employee deal. For example if an organization wants to provide a highly collaborative environment the Reward system should also support that. 

One of the ways to enhance the alignment between Rewards and OD is to jointly create a coherent and internally consistent ‘Employee Value Proposition’ or a ‘Total Rewards Statement’ that include all these dimensions. This would ensure better integration between the transactional aspects (traditionally the domain of Compensation & Benefits) and the relational aspects (traditionally the domain of OD) of the total employee deal. Please see ‘Of Rewards, OD and Passing the buck’ for more details. For example, it creates cognitive dissonance when the organization looks at salary purely as a 'matter of supply & demand' and at the same time wants the employees to develop a deep emotional connect with the organization beyond the rational connect  (or even consider the organization as their extended family).


Reward systems must focus on what is valued in the organization (stated values of the organization). Clarifying these values is an area where OD can help. There must be a clear connection between the valued behaviors and the Rewards. Money speaks louder than words! So if there is a disconnect between the espoused values of the organization and what is actually rewarded, the employee behaviors would be influenced by what is rewarded. It is also a sure way to lose credibility and trust.

Another very important contribution that OD can make is to better manage the formation and evolution of the psychological contract. While salaries are more in the domain of the employment contract, the way salary negotiations are conducted during the various phases of the employee life cycle can have a huge impact on the formation and evolution of the psychological contract and hence outcomes like employee engagement, performance and retention. Please see ‘Of Salary negotiations and Psychological contract’ for more details. Also, how Reward decisions are handled (especially when the organization is not doing well or when the organization can afford to drive a hard bargain with the employees) with both shape and reveal the organization culture and values.


OD can help in facilitating better change management around the changes made to compensation and benefits (especially on tricky ones like discontinuing a benefit or redesigning incentive/variable salary schemes to derive more value). Of course, it works the other way around also. When OD is driving an organization-wide change management effort, Rewards can be of immense help by rewarding the desired (new) behaviors/ways of working and hence facilitating them to take root. For example, if the organization wants to build a more performance-driven culture, increasing the level of differentiation in Rewards for the various levels of performance can be a key enabler.


So where does this leave us? OD can add a lot of value to Rewards. OD can help Rewards to evolve from Compensation & Benefits to Total Rewards! We can say that the application of OD makes Rewards better just like ‘sugar sweetens milk’ in the famous story* about Parsis. Of course, it is important to keep working on the Rewards & OD partnership to take it to higher levels of excellence and to ensure that things doesn’t fall through the cracks (or fall in ‘no man’s land’). Considering that we are on an OD quest and not a conquest continuous exploration of the possibilities of the Rewards and OD partnership definitely fits into the spirit of the OD quest!

 The story goes something like this.: Parsis came to India fleeing from persecution in their Motherland Iran and landed in Gujarat. There they approached the local king Jadi Rana and requested asylum. Jadi Rana motioned to a vessel of milk filled to the very brim to signify that his kingdom was already full and could not accept refugees. In response, one of the Parsi priests added a pinch of sugar to the milk, thus indicating that they would not bring the vessel to overflowing and indeed make the lives of the citizens sweeter. Jadi Rana gave shelter to the emigrants and permitted them to practice their religion and traditions freely. Parsis are still adding “sugar” to our lives!

Any comments/thoughts before we take our OD quest to the next domain in the HR land?!

Of Rewards, OD and passing the buck

“Compensation decisions are based entirely on the market and business situations. Our objective is to achieve the right balance between ‘need to pay’ which is based on the market scenario and the ‘ability to pay’ which is based on the company scenario”, said the Rewards Manager. “Wouldn’t that make the Rewards function very transactional? Shouldn’t you look at the ‘want to pay’ aspect which is based on the overall people management philosophy of the organization, in addition to the ‘need to pay’ and ‘ability to pay’ aspects that you have mentioned?”, asked the Organization Development(OD) Manager. “We can’t create competitive advantage through compensation strategy as it can easily be copied. Hence, the compensation function has to be transactional and business oriented.While I agree that 'Total Rewards' is our approach, I am only the 'Rewards Manager'. Executing parts of the Total Rewards framework that are not related to compensation and benefits should be the job of the OD function as it is the mandate of the OD function to build a deeper engagement with the employees.”, replied the Rewards Manager. “OD function is also business aligned – it is not about charity and feel good initiatives. Creating deeper engagement with the organization requires a multi-pronged approach and that includes Rewards related dimensions also. Rewards is a very important tool to shape employee behavior. If our Rewards strategy is only about ‘paying the employees the lowest compensation that we can get away with’, we are not only not leveraging the full potential of Rewards, but also creating irreparable damage to the psychological contract between the employee and the employer. Managing the psychological contract is key to building deeper engagement with the employees”, said the OD Manager.

During the first few years of my career, I did a lot of HR consulting work related to Rewards – benchmarking, policies, benefits, compensation structuring, variable pay schemes, employee stock option plans, voluntary retirement schemes, job evaluation etc. Apart from developing functional expertise in the Rewards domain, I also developed an affinity/feel for compensation related numbers. When I look at a data sheet with a lot of compensation related information it (say the compensation data from various companies/units), the figures 'talk to me' (i.e. the patterns in the data and the actionable inferences based on the same automatically pop up in my mind). Later in my career, I gravitated towards OD, though I did get involved in Reward related matters when I have handled HR Business Partner roles. Anyway, Rewards has remained close to my heart though I have been making a living mostly out of OD for the last ten years. Of late, I have been making an attempt to stand at the intersection of Rewards and OD (Please see the six posts in the series on 'Salary negotiations and Psychological contract' for details). Also, I don’t miss any opportunity to interact with fellow Rewards and OD Managers. The conversation at the beginning of this post is derived from those interactions.

My opinion is that both the Rewards and OD Managers here are 'correct' - from the point of view of their respective sub-functions. They are just articulating the mandates given to them. However, while being 'technically correct' they are also missing the essential point here! Please note that one can be 'completely correct' and 'completely irrelevant' at the same time!

During the last 15 years, in the context of organizations that I am familiar with, I have seen ‘Compensation & Benefits’ evolving into ‘Rewards’ and then into ‘Total Rewards’. Similarly, I have seen OD evolving from ‘Process OD’, to ‘Process and Structural OD’ and then to ‘Organization Effectiveness’. That is where the 'trouble' begins. You see, when Reward Managers were just looking after compensation and benefits (providing 'money and goodies') and OD Managers were just doing OD interventions (the kind where you get people into a room and facilitate collaboration, better decision making or creation of a shared vision) these domains did not have much in common and they required very different skill sets. Now if we look at the ‘Total Reward Frameworks’ of many of the organizations, they will have dimensions like culture, learning opportunities, career development, empowerment, work environment etc. Similarly, Organization Effectiveness (OE) is essentially about enabling the organization to achieve its goals by ensuring alignment between the various dimensions/components of the organization and by facilitating positive change. This makes OE/OD more business aligned. This also calls for structural interventions (interventions at the structure, norms, policy & work process levels) in addition to interventions at the human process level. This creates an overlap between the Reward and OD domains, especially when it comes to policies and reinforcement mechanisms to encourage and institutionalize particular actions/behaviors/changes.

When there is an overlap, there are three basic possibilities. The first is that the parties find a way to work together effectively and help each other in the areas of overlap. Obviously, this leads to the best possible outcome. The second possibility is that there is a war over territory and the winning party captures some or all of the overlapping area. While this is often a wasteful process, things usually get done (i.e. they don’t fall through the cracks). The third possibility is that none of the parties take ownership for the overlapping area (and things fall through the cracks). Unfortunately, when it comes to the overlap between Rewards and OD, the third possibility is the one that often actualizes! May be, Rewards and OD Managers are basically ‘nice’ people who don’t want to step on the toes of others! So this creates a situation where the overlapping areas exist in the ‘Frameworks’ and Power Point Presentations of both the parties but nothing much gets done!!! This is what leads to the ‘passing the buck’ phenomenon that this post talks about.

So, what should be done? The important thing here (apart from seeing to it that things don’t fall through the cracks) is to ensure that there is alignment between what Rewards is driving and what OD is driving.

For example, if OD is working on creating an emotional connect between the employer and the employee (that goes beyond rational commitment) and the Rewards approach is that ‘compensation is purely a matter of supply and demand’, then it will send conflicting signals to the employees and also create a violation of the ‘psychological contract’.

Let us look at this in a bit more detail. The situation here can be traced back to fundamentals of the compensation philosophy of the organization – does the organization pay the employees based on what they deserve (within the constraints of what the organization can afford) or does the organization pay the employees as little as it can get away with? This comes into play in a situation where there is an industry downturn (making it difficult for the employees to change jobs) but the particular organization is doing well (growing reasonably fast with healthy profits). In such a scenario, the organization can afford to give the employees good salary hikes. But it can choose not to do so (or choose to give a very low salary hike) because even without the salary hike it can retain the employees. This certainly provides short term gains. It can also be explained away in terms of salaries being market benchmarked. However, this will violate the psychological contract and will lead to a situation in which the employees (especially very valuable employees) leave the organization as soon as the job market improves (Going by the same logic that the organization had used, the employees should leave the organization when the market will pay more!!). A similar situation occurs in the case of hiring also. When the company hires a person (internal or external hire) into a job what salary will be offered? Will the company offer the lowest salary that the candidate will accept or will it offer the salary corresponding to the worth of the job in the company? These are the situations where the 'want to pay' aspect comes in. If the company drives a hard bargain because the employee was not in position to negotiate at that time, no amount of talk later about ‘employees being the biggest asset’ and ‘building a great organization together’ will undo the damage that happened earlier because of the  loss of trust. Some of the IT organizations in India have learned this lesson the hard way!

At the core, people management (of which Rewards and OD are parts) is about understanding, predicting and influencing human behavior. Now, 'human motivation' is a complex phenomenon (See 'The power of carrot and stick' for a detailed discussion). Complex phenomena are usually 'over determined' - that is they have multiple (interrelated) causal/input factors. Some of these factors are in the OD domain and some of the factors are in the Rewards domain. Hence an integrated approach combining Rewards and OD is required. For example, the recent research findings in behavioral economics have created serious doubts on whether many of the performance linked pay schemes have any positive impact on performance. Hence, a combined effort from Rewards and OD is required to ensure a positive return on investment (in monetary and non-monetary terms) from such schemes. Otherwise, such schemes will just be 'tools to match the payout with the ability to pay' - without any useful impact on performance levels. In a way, our problem (Rewards and OD working in silos) has similarities with ‘Multiple Personality Disorder’ (see ‘HR Professionals and Multiple Personality Disorder’ for details). The most important thing in such a scenario is to get the two parts of the personality (Rewards and OD in this case) to talk to each other. This is not something that can be accomplished in one big meeting. This involves a different way of looking at things and joint exploration and solution design.

One approach to make this happen is to get the Rewards and OD teams to work together in crystallizing, articulating and delivering (in terms of specific HR processes and initiatives) the ‘Employee Value Proposition’ (EVP) of the organization. EVPs (that specifies the total employee deal offered by the organization) usually have both Rewards and OD related components and the EVP should inform both the OD and Rewards strategy of the organization. Also, jointly thinking through the implementation details of the various initiatives to deliver the EVP will help professionals in the Rewards and OD sub-functions to develop a better appreciation of challenges the other sub-function is facing. For example, it is very easy for OD managers to talk about 'correcting the salaries' or about 'standardizing benefits'. Similarly, it is very easy for Rewards managers to talk about 'changing the culture' or about 'creating intrinsic motivation by providing employees opportunities for self-actualization'. However, to make these happen in a reasonably short time period within the constraints of the organization is incredibly difficult.

May be, it would also be a good idea to integrate Rewards and OD domains more tightly in terms of the structure of the HR function.

There is also a larger issue here. As I had mentioned in ‘Paradox of business orientation of HR’, while there is no doubt that the HR function (and hence the Rewards and OD sub-functions) exists to support the business, the exact nature of the ‘business orientation’ that is required to support the business most effectively is a complex one. This becomes especially important, if HRM has to mean something more than ‘making people do more work without paying them too much and without risking disruptions to the business operations’. Please note that this problem is not confined to the Rewards domain. For example, if the OD/OE function goes about actively deskilling the jobs so as to manage the process risk and to reduce skill requirement (and hence the time and investment required in hiring/training and of course the salaries that need to be paid), it would take away from the richness and hence the motivation and learning potential of the jobs. In the specialist functions like Rewards and OD we should also be careful to ensure that in our obsession with tools and techniques (see 'Daydreams of an OD mechanic') we don’t miss the broader picture – that is alignment with the core values and the basic people management philosophy (see ‘Towards a philosophy of HR') of the organization.

Any comments/thoughts?