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IBM’s Change in Pay Structure

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In the 1990s, IBM’s emphasis on internal alignment (well-developed job evaluation plan, clear hierarchy for decision making, work/life balance benefits, policy of no layoffs) had served well during the last century when the company dominated the market for high-profit mainframe computers. But it did not provide flexibility to adapt to competitive changes in the new century. A redesigned IBM is a “solutions-led business offering diversified information technology capabilities.”

A new business strategy requires a new compensation strategy. At IBM, this meant creating a high-performance work culture (incentive pay), increasing employee and organization flexibility (work design), winning in the marketplace (attract/retain talent), and constantly containing costs. IBM changed its pay strategy and system to support its changed business strategy. And it changed from a doomed dinosaur to the “t-Rex of the technology industry.”

Companies can learn from this example, when business strategies change, pay systems should change, to reflect strategic and cultural transformation.


YouSigma. (2008). “IBM’s Change in Pay Structure." From

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