I’ve quoted from Lewis Carroll’s Alice’s Adventures in Wonderland before in a post, but I’m going to use it again because it happens to be one of my very favorites in regards to developing variable compensation plans.
“Would you tell me, please, which way I ought to walk from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where,” said Alice.
“Then it doesn’t matter which way you walk,” said the Cat.
Of course there’s also the much more simplified: “Begin with the end in mind.” But I like the more whimsical nature of Alice’s exchange with the Cheshire Cat. The reason I keep reminding myself of this is because I enjoy analysis, and creating charts and tables to show how a program will work. So I want to jump right into that, but keeping this dialogue in mind helps me to remember to slow down and start in the right place by asking: What are we trying to accomplish?
When a company is looking at creating a variable pay plan it’s generally to support a specific business objective. Sometimes it’s really clear what that objective is, other times you have to dig and ask questions over several conversations to understand exactly what needs to be achieved. It’s also important to understand the desired path and outcome. Perhaps a company is looking to build relationships with customers in order to generate repeat business and more revenue. That requires a different variable pay plan than a company looking to be the first to market with a new product in order to increase revenue.
Companies also need to determine what they can provide to their employees that will make this outcome more likely. Cash is usually what comes to mind first, and cash definitely has its place. There are times though when that might not be the best motivator. Most people enjoy learning and increasing their knowledge base. In developing new products, sometimes the opportunity to try something new without fear of failure may be enough. Other times employees will be more willing to go above and beyond for the financial reward. Another important consideration is whether a short-term reward would provide the best outcome, or if a longer reward horizon is more appropriate.
The budget is another matter that must be understood before suggesting a plan. It’s imperative to understand how much money is available, and how soon it’s available. We also need to determine if the goals we’re trying to accomplish can be achieved by individual contributors, or if they will require a team effort. Once these types of questions have been addressed, then, and only then, should we begin our analysis and creating our fancy charts. After all, you have to know where you want to get to before you can decide which way to walk!
Darcy Dees, CCP works as the Compensation Manager for Rock Bottom Restaurants, Inc., headquartered in Louisville, CO. She has worked with RBR for nearly 10 years helping to develop many of the compensation and performance management programs the company uses today. She spends what little free time she has hiking and reading.
The opinions expressed here are the personal opinions of Darcy Dees. Content published here is not monitored or approved by Rock Bottom Restaurants, Inc. before it is posted and does not necessarily represent the views and opinions of Rock Bottom Restaurants, Inc.
Image: Creative Commons Photo "Two Paths" by vxla
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