BMW has announced plans to link the pay of top managers to those of their assembly line workers. This innovative pay structure comes after much scrutiny over executive compensation during the current economic crisis. The compensation plan, starting in 2010 will use a common formula to link upper and lower level employees to the company’s performance. This means that management will have the potential to lose more than workers for poor performance. They believe that this will create a more transparent and sustainable organization.
This pay structure is an innovation in paradigm at BMW. There is a change in the organizational culture. Their old culture placed a greater emphasis on performance for the workers and now their culture will place performance emphasis on all employees. This shows they are concerned about creating sustainable personnel policies. Do you agree that this pay structure is innovative?
While I believe that this is a good idea, I also believe that it presents a lot of risks for BMW. One risk I foresee is that management will work towards the performance objectives that are measured and not the overarching strategic objectives of BMW. Do you think this a good idea? Are there any risks that you foresee?
Another risk I foresee is that it will discourage technical innovations in the firm. This compensation structure could cause both management and workers to focus on current production and financial numbers and not the future of BMW. However, I also think that it could encourage innovation by creating a more collaborative work environment. Do you think this initiative will affect technical innovations at BMW?
I believe that this type of pay structure, where pay is linked to performance, could be used in any organization. The difficulty lies in creating fair measures of performance. One industry that I believe this could be easily implemented is the banking industry where C.E.O. compensation has also been highly scrutinized. Can you think of other industries that this would work in? Do you think that other companies will follow BMW and create similar pay structures?