A few books can change your life. This is probably not one of them. However, if you read it, you will better understand that pay matters. After all, you can't pick up a newspaper, power up a computer, or read a blog today without someone talking about pay. The Great Recession (our term) has had huge ramifications for pay. Some folks have had their hours cut or pay reduced. Why? Because it's a more effective way to cut costs without laying off workers. Workers still left on payroll after all the recent cost-cutting moves are the best of the best. Layoffs would mean cutting the heart of the organization. Surveys suggest workers faced with layoffs or reduction in hours almost always will choose shorter workweeks . . . at least in the short run! The recession also has focused attention on executive compensation. As the government bailed out the financial industry, newspapers were reporting huge bonuses going to the very employees who helped cause the financial disaster. For example, Merrill Lynch & Co. “secretly” moved up the date it made awards for 2008 and allotted $1 million or more to nearly 700 employees. Even our book can't explain that kind of arrogance.

Pay also matters around the globe. For example, if you are a Russian cosmonaut, you can earn a bonus of $1,000 for every space walk you take (technically known as “extravehicular activity,” or EVA), up to three per space trip. A contract listing specific tasks to be done on a space mission permits you to earn up to $30,000 above the $20,000 you earn while you are on the ground. (In contrast to the Russian cosmonauts, wealthy Americans are lining up to pay $15 million [plus an additional $20 million airfare] to the Russian Space Agency for their own personal EVA.) Conclusion: Pay matter.

If you read this book, you will also better understand that what you pay for matters. Many years ago, when Green Giant discovered too many insect parts in the pea packs from one of its plants, it designed a bonus plan that paid people for finding insect parts. Green Giant got what it paid for: insect parts. Innovative Green Giant employees brought insect parts from home to add to the peas just before they removed them and collected the bonus. The Houston public school district also got what it paid for when it promised teachers bonuses of up to $6,000 if their students' test scores exceeded targets. Unfortunately, several teachers were later fired when it was discovered that they had leaked answers to their students and adjusted test scores.

Such problems are global. A British telephone company paid a cash bonus to operators based on how quickly they completed requests for information. Some operators discovered that the fastest way to complete a request was to give out a wrong number or—even faster—just hang up on the caller. “We're actually looking at a new bonus scheme,” says an insightful company spokesperson. Conclusion: What you pay for matters.

If you read this book, you will also learn that how you pay matters. Motorola trashed its old-fashioned pay system that employees said guaranteed a raise every six months if you were still breathing. The new system paid for learning new skills and working in teams. Sound good? It wasn't. Employees resented those team members who went off for six weeks of training at full pay while remaining team members picked up their work. Motorola was forced to trash its new-fashioned system, too.

Microsoft employees were also grumbling. More were leaving; top recruits were going elsewhere. The lackluster performance of Microsoft stock was depressing the value of the eye-popping stock options the company routinely doled out. What to do? Rather than stock options, Microsoft changed its pay system to give employees actual shares of stock with a value that was immediately known. This move increased the value of employees' pay and eliminated the risk they faced from the stock performance. What did Microsoft get? Happier, more expensive people. No word yet on product innovation, customer satisfaction, or even quality of new hires. Conclusion: How you pay matters.

We live in interesting times. Anywhere you look on the globe today, economic and social pressures are forcing managers to rethink how people get paid and what difference it makes. Traditional approaches to compensation are being questioned. But what is being achieved by all this experimentation and change? We have lots of fads and fashions, but how much of it is folderol? In this book, we strive to cull beliefs from facts, wishful thinking from demonstrable results, and opinions from research. Yet when all is said and done, managing compensation is an art. And as with any art, not everything that can be learned can be taught.