Working in compensation and benefits sometimes means grappling with ethical dilemmas.
I’m not talking about the abstract, unlikely thought experiments that keep philosophers up at night. (You know the sort of thing: is it worth sacrificing one person to save five, as in the famous ‘trolley problem’).
Instead, we face real-life situations that have a direct impact on employees. We also can’t afford to look for the most ‘morally correct’ solutions without also considering the practical consequences.
Our decisions need to be fair, yes — but they also need to help the business build its talent pool in a cost-effective way.
That’s why I like to share hypothetical scenarios and case studies with you here from time to time — often inspired by real challenges I’ve faced during my career.
It’s always interesting to see the conversations that emerge and find out whether there’s any sort of consensus among compensation and benefits leaders.
The dilemma of the employee-inventor
Many companies rely on innovation to stay competitive.
And, since I tend to be drawn to tech or industrial companies with a strong engineering culture, I’ve often found myself working in these environments.
Of course, inventions made by employees as part of their job typically belong to the employer, especially when they’ve been hired to do R&D (that’s what you pay their salary for, after all). Still, it feels only fair to reward inventor-employees when a patent is filed or granted for an invention they helped create.
Setting up systems that reward innovation is also a practical way to encourage employees to explore, experiment and create.
And in many countries, it’s also a legal obligation: in France, for example, financial compensation for inventions has been inscribed in law since 1990. This is a rare case of total alignment of the practical, ethical and legal arguments. In theory, putting policies in place to reward employees for their inventions should be a no-brainer.
And yet… setting up these programmes can be tricky in practice. Why? Because even if they’re mandatory in your country, the law won’t necessarily tell you how much you should pay, or how to calculate it. To stay with the example of France, the law says that specific conditions should be set out in collective agreements… but even these are often vague at best.
So, what is the right amount to reward an employee for an invention that could bring in millions in revenue? How can you evaluate the individual contribution of a team member in relation to the resources provided by the employer?
These are the kinds of questions that compensation leaders have to answer — and there are many different approaches we can take.
Whether it’s in the form of one-off bonuses, variable pay linked to how the invention is used commercially, or a mix of the two, both the methods of calculation and the actual sums involved vary widely.
From New Delhi and New York: are inventions worth the same in different markets?
One of my first big headaches as a young professional involved setting up an inventor bonus scheme in a large multinational company. Like many in compensation and benefits, I quickly realised how challenging it is to align these systems across different locations.
After all, a flat bonus of €2,000 doesn’t have the same weight for an engineer in France earning €80,000 a year as it does for a counterpart in the US earning twice as much — or in India earning half. While this sum might be enough to encourage innovation in France, it’s unlikely to have the same effect in the US.
On the flip side, a bonus like this could be too motivating in countries like India, where engineers might end up focusing all their time on projects that are likely to earn them a patent at the expense of other work.
One option is to calculate bonuses as a percentage of salary, which ensures they’re equally meaningful for everyone. But this raises another question: should the same invention have a different price tag depending on whether it’s developed in New Delhi or New York?
This might be an ‘effective’ approach, but it doesn’t feel particularly fair. So, what’s the best way to handle this?
I don’t have a clear-cut answer. And it seems that the market doesn’t either: in my experience, only a small number of companies apply a unified system across all locations, while most at least partially tailor their approach to local contexts.
The Pandora’s box of geographic inequalities
Why does it seem unfair to pay €2,000 for an invention in France but €150 in India, when we find it ‘fair’ to pay an engineer a salary of €150K in San Francisco but only €25K in a developing country?
That’s the obvious counterargument to my point… and honestly, I don’t have a good response.
(And it’s not just a business issue: to give another example from last year, even Olympic medals come with different financial rewards depending whether the athlete is from the US or Hong Kong…)
My best answer is that because salaries take into account market conditions and the local cost of living, inequalities between countries seem more acceptable. But the same invention being rewarded differently in different places feels more problematic, because its value isn’t tied to a given market in the same way.
Intuitively, this feels different… but it could just be an illusion.
Maybe, if we think about it more deeply, we’ll realise that salary differences between different countries don’t really make sense, especially in an increasingly globalised and digitalised world.
That people doing the same work deserve equal pay, no matter where they are in the world.
The problem comes when we try to apply this idea in the real world of work.
After all, this would have a real and significant impact on company finances. Because, to harmonise salaries globally, there’s no way to level down (good luck to any company trying to attract American engineers at Indian prices).
So, the only viable option is to align salaries with the highest-paid locations. And what company would seriously be willing to raise all of their employees’ salaries around the world to American levels in the name of ‘equity’?
All of this said, there is one growing solution that allows employers to be a bit more ‘equitable’ without breaking the bank (while still maintaining efficiency).
Highlighted by the European CSRD Directive (which I know is causing a lot of headaches!), the idea of ‘living wages’ is gaining traction. Among other companies, Michelin recently announced its commitment to pay all employees salaries that allow them to live with dignity, regardless of local legal requirements.
We’ll return to this idea in a future edition, as it’s a very rich and important topic.
In the meantime, if you’re facing your own dilemmas balancing equity and efficiency in compensation decisions, I’d love to hear about them!
To continue the conversation
Here’s some reading to keep the conversation ongoing on this topic. If you’ve come across any interesting reads, feel free to send them my way!
Salary transparency gains steam in Asia as young people share their salaries online — Ernestine Siu, CNBC
Between the US laws that have been shifting the landscape since 2020 and the well-known EU directive, has transparency become a global movement? While opacity has long been the norm in Asia, the new generation is starting to change that by openly discussing pay online.
What Is a ‘Decent Wage’? France’s Michelin Raises a Debate. — Liz Alderman, New York Times
An interesting discussion of Michelin’s 2024 commitment to pay all 132,000 employees in 26 countries enough to live ‘decently’ — well above legal minimums. While this approach raises questions about cost-efficiency, it signals a shift towards more socially responsible pay practices.
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