Flexible Pay: Charting a New Course in Employee Compensation

In the quest to attract, retain, and motivate the workforce of the future, traditional one-size-fits-all models of pay are bound to give way to more personalized methods of compensation. I am aware of at least two pioneering companies (Shopify and Unilever), which are at the forefront of this transformation, implementing flexible pay models in their organizations, tailored to the diverse needs and preferences of their employees.

The Case for Flexibility in Compensation

Imagine receiving two job offers: one offering a $100,000 base salary with a 25% variable bonus, and the other a fixed $125,000 with no bonus. Which one would you pick? From the surveys of HR professionals which I have conducted, more than 75% prefer the latter. And yet, the very people who are responsible to ensure pay packages serve to attract, retain, and motivate, are reluctant to initiate this change, despite their own (and likely their employees’) preferences. This hypothetical scenario illustrates the need for flexibility in compensation models. Different employees assign different value to the various aspects of their compensation package, and a rigid approach may not cater to the varied preferences of a diverse workforce.

Shopify's Flex Comp Model

Shopify has introduced Flex Comp, a revolutionary approach to compensation that allows employees to choose how they allocate their total reward between base salary, Restricted Stock Units (RSUs), Stock Options, and future features like Shop Cash. This model removes one-year cliffs on equity and permits employees to adjust their allocations a few times a year. The user-friendly interface of Flex Comp clearly displays the impact of these choices on an employee’s earnings.

Unilever’s U-Work Model

Unilever’s U-Work program represents a significant departure from traditional employment contracts. Launched in 2017, U-Work is a hybrid model that blends aspects of being a full-time employee and a contractor or gig worker. Under this model, employees are not required to work continuously for Unilever. They engage in project-based work, yet regardless of their work status, they receive consistent monthly pay, pension contributions, and healthcare benefits. This innovative approach offers flexibility and security, catering to the needs of a modern workforce that values autonomy and work-life balance.

By the way, I am under a similar compensation model at one of the universities where I teach. 

Towards a Future of Personalized Compensation

The initiatives by Shopify and Unilever highlight a growing trend towards more flexible, personalized compensation models. These models acknowledge that employee needs and preferences vary widely, and a rigid, one-size-fits-all approach to compensation is no longer sufficient in the evolving landscape of work. By offering a range of options and allowing employees to tailor their compensation packages to their individual circumstances, companies will be able to better attract, retain, and motivate their workforce.

As we step into the future of work, it's important that organizations recognize the diverse needs of their employees and offer flexible, innovative compensation models. This approach not only enhances employee satisfaction and engagement but also positions companies as forward-thinking, adaptable, and attuned to the needs of their people. Flexible pay models, as demonstrated by Shopify and Unilever, are leading the way in this new era of personalized employee compensation.

One suggestion is to offer a premium/discount for employees that want to shift from bonus to base and vice-versa. For instance, if employees want to shift base to bonus, there is a 10% discount. If the shift is in the other direction, they would get a 10% premium. This should help appease the folks that want to have variable pay as a means to control costs. But also allows for choice. 

Are you ready to start a pilot in your company?