Remuneration in the Transaction Company is decentralised. Employees are rewarded through their work relations with colleagues. Third parties, who don’t have direct work relations with a particular employee, are not involved in determining his remuneration.

This principle of remuneration comes from the realisation that the results of your work are best valued by those who make use of them. It is efficient, motivating, and fosters collaboration in the company.

Producer/Consumer Work Relations

The Transaction Company is concerned with work relations of the type “producer/consumer”. It isn’t concerned with “power relations” in the organisation because they don’t generate economic value.

Any situation where an employee uses the input of a colleague in order to carry out his job qualifies as a producer/consumer work relation.

Four examples of such work relations taken from our fictional company StellarWays:

It is through their work relations that employees fulfil their economic potential. Therefore, the success of the company, as a collaborative venture, depends on the extent to which people are able to maximise this potential through their work relations.

Shortcomings of Centralised Remuneration

Traditionally, the tasks of performance measuring and remuneration in companies have been carried out centrally, as a compartmentalised management function. Herein lies a fundamental weakness of centralised remuneration as it tends to become detached from the work relations that make up the value creation process of the business. This has a number of implications:

• It is difficult for a manager to determine the productivity of an employee with whom he doesn’t have significant work relations of the type producer/consumer.
• From a systems perspective, centralised remuneration, as a measuring/rewarding mechanism, is prone to inaccuracies and lags. This eventually affects the stability of the entire business.
• Centralised remuneration can present a costly overhead, which can be further worsened by attempting to correct its shortcomings with more formal and bureaucratic compensation procedures.
• It favours power relations over productive collaborative relations.
• If sufficiently detached from the purpose of the organisation, it may (unwillingly) reward counterproductive, pretentious or deceptive behaviour.
• All of the above can turn into a major source of frustration among managers and employees concerned with correctness and fair pay, eventually leading to conflicts.

Shift from Centralised Remuneration to One Based on Work Relations

The Transaction Company removes centralised remuneration by allowing employees to make their work relations transactional, thus integrating the mechanism of reward into them. This can be outlined by two simple steps:

1. Determine your work relations - those where you act as “producer” and those where you act as “consumer”;
2. For each work relation, agree on deliverables and price with the respective colleague.

An employee is remunerated only through his work relations. The pay derives from the difference between what he received (as “producer”) and what he spent (as “consumer”).

	Jack’s Monthly Transactions for December 2006	+ / -
1.	Supplied John, the R&D director, with a new engine design for higher fuel efficiency	+$10′000
2.	Help from James in tuning the fuel control system	-$4′000
3.	Maintenance of 5 spacecraft for Jill, the fleet manager	+$5′000
4.	Monthly pay to Juho, the sys admin, for IT	-$500
5.	Bonus to Juho for being extra friendly and patient	-$200
6.	To Jennifer for Xmas decoration of the office	- 100
Balance		$10′200
Shareholder dividend @ 10%		$1′020
Monthly pay		$9′180

While transactions can be formalised across the company to make their administering easier, employees are generally free in determining the terms and the prices of the transactions between themselves. Employees also have discretion in choosing which work relations should be rendered as transactions, e.g. for activities with negligible value or for activities they wish to render for free.

Benefits of Transactional Remuneration

The benefits of transactional remuneration derive essentially from integrating a monetary reward mechanism into the work relations of employees. This can also be described as aligning the vectors of value creation and reward so they don’t conflict with each other.

Despite the relative simplicity of transactional remuneration, its effects are significant and complex:

• As an integral part of work relations and taking the form of transactions, remuneration becomes more objective and differentiated. Instead of receiving a lump sum at the end of the month, the pay is itemised, giving important feedback about the value of the individual activities that the employee undertakes.
• Remuneration naturally and efficiently follows individual productivity, thus becoming a quasi automatic process. Companies which used to have complicated bureaucratic systems for employee appraisal and remuneration can achieve considerable administrative cost savings in this regard.
• The tactics to earn more money is not “impress the higher powers that have authority over your salary”, but developing profitable work relations with colleagues in order to maximise the results of your work. This fosters collaboration in the company.
• There is no artificial organisational ceiling limiting how much a person can earn.
• The richer interactions and the ability of everyone in the company to give and receive rewards makes for a satisfying workplace.
• Creates an environment where people gain a better awareness of their job - its value and how it relates to the company business as a whole. This environment teaches self-responsibility - employees realise that how much they earn is, first and foremost, up to them.
• Reduces the organisational need for costly projection of supervision and control by fostering individual initiative and responsibility.

Edited 29 Jan. 2007