Compensation Cafe

Implementation: Action that Must Follow Ideas If You Actually Want Something to Happen

Each year we step back to adjust to an updated business strategy that addresses new challenges. We plan alignment of objectives, behaviors and performance with that strategy. And then we try for effective implementation of the strategy so we can achieve the planned-for results . . . results that fund financial success and compensation.

This is the virtuous cycle in which you invest your hard work and the company's money.

As we all know, HR plays a critical role as facilitator of alignment and educator of effective implementation. Many of you are in the midst of the objective setting process right now, where you are responsible for training and facilitating the cascade of objectives within your organization.

Objectives that employees should be developing to link with corporate performance. Otherwise, their work will have only a glancingly positive impact on financial and operational results -- or could misguidedly create obstacles that have negative impact on those results.

There is no doubt that your employees' ability to adapt to each new strategy impacts the success of your company. Look at this result from the World's Most Admired Company research conducted by the Hay Group in partnership with Fortune Magazine. It makes it clear that "Most Admired Companies" do a far better job of implementing their strategies (and achieve significantly higher Total Shareholder Returns).  

And their HR organizations do a better job of implementation, too. Implementation of new programs and existing programs like compensation that can truly play a role in the business strategy when employees see strong linkages and understand how they can impact success. 

Over my next few blog postings, I'm going to cover what effective implementation means, how it can help you and what you can think about doing differently. I thought it would be a great time of year for this discussion since you'll be turning new ideas into plans over the next few months.

Turning great intentions into business results is really where the rubber meets the road. Great ideas become actual business opportunities only when people understand clearly and then are willing and able to do the tough work of changing to a new focus and new practices.

I'll be talking about communications and I'll be talking about change management, too. After all, compensation is a form of change management. Every paycheck sends the message that we expect employees to assess a changing environment and profit from changing opportunities.

Margaret O'Hanlon is founder and principal of re:Think Consulting.  She has decades of experience teaming up with clients to ensure great Human Resource ideas deliver valuable business results.  Margaret brings deep expertise in total rewards communications and change management to the dialog at the Café. Before founding re:Think Consulting, she was a Principal in Total Rewards Communications and Change Management with Towers Perrin. Margaret is a member of the Board of Directors of the International Association of Business Communicators (IABC), Pacific Plains Region. She earned her M.S. and Ed.S. in Instructional Technology at Indiana University. Creative writing is one of her outside passions, along with Masters Swimming.

Sometimes the Road Less Traveled leads to a Band of Flying Monkeys

We all get bored. Most of us fill that boredom by exploring something new. Often this leads to an exciting new restaurant, but sometimes it means a terrible meal. Sometimes this means meeting new friends, other times it means getting stuck at a colleague's holiday party listening to stories about office politics and sick children. In my experience, very few compensation professionals are also extreme sports fanatics. I seldom speak to someone in our industry who has recently snowboarded off a cliff or free-dived with white sharks.

I bring this up because we are responsible for a huge portion of our companies' success. It surprises me how often professionals make a decision to follow a new path without first calculating to possibility of the path ending in a band of flying monkeys, rather than a better solution.

Are you following the road less traveled in the spirit of Robert Frost or Dorothy from The Wizard of Oz?

I ask because I still see a lot of compensation professionals acting against their nature when it comes to new programs. When an old plan is not working as well as planned, many choose to roll out a new program. This is done instead of enhancing the features and communication around an older plan. While the problems may be driven by failures in the design of the old plan, it is just as likely they are caused by poor utilization of available plan features or poor communication of the same.

Given our increasing responsibilities and shrinking staff sizes, rolling out a new plan efficiently is often beyond our capabilities.  We frequently discover that completion is impossible when we are already well down the "new plan" road, when turning back is no longer an option. This results in abandonment or, worse, partial roll-out of the new plan.  It can also mean that your old plan may still, by necessity, be your ongoing solution.

This year, explore a quick trip down the future of your current program path and ask yourself if you can get where you need to go without starting all over. You may find that you have simply been doing things by rote when a burst of new energy is all that is needed to reach your destination.

Remember that although Dorothy finally got where she was going, the journey was both arduous and terrifying.  We seldom have the luxury (or desire) of putting our employers and employees through a truly frightening experience. Dorothy had the distinct advantage of an author who could ensure that her story had a “Hollywood” ending. We generally drive the ending of our stories and are held professionally accountable for their success or failure.

Take a few days before 2011 disappears to document the reasons for the success or failure of your current (or recent) compensation plans. Be brutally honest about whether you and your staff could have done anything to have made them more successful.

Might I recommend doing those things, before you start down another unknown path?

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” , “If I’d Only Known That” and  “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Prepare for Compensation Meetings Like an NFL Broadcaster

Like many of you, I have football games playing on my TV during most autumn Sunday afternoons. Also, like most of you, I  pay a lot attention to the big plays, but little attention to the broadcast itself. This past Sunday, for perhaps the first time ever, I focused on the incredible preparedness of the professionals producing the television events. It got me to thinking. What if compensation professionals prepared themselves in the same way? Our meetings with Executive Management and Compensation Committees would be short, enjoyable and incredibly effective.  More importantly, our programs would evolve more quickly and represent our companies more completely.

Consider any NFL broadcast. The announcers have spent all week studying the players and game plans of each team. Research assistants have put together statistics with such specificity that they make my wife laugh almost every weekend. “That pass sets the record for most passes to a running back, under 5’7” during the third quarter of a game in the twelfth week of an NFL season.” Cameras are set-up to cover the play from nearly every angle. They know where family members are sitting and where they’re from.

A great example of this attention to detail was a recent game in which Carson Palmer, quarterback for the Oakland Raiders, threw an interception that was run back for a touchdown. Almost immediately, there were replays from three or four different angles. There was nothing surprising here, just expected levels of great work.  Then came the doozey. Within 30-45 seconds of the play the announcers started talking about Mr. Palmer’s tendency to throw interceptions that were returned for TDs. While they spoke, a series of at least eight prior interceptions from the full length of his 8 -year career, played on the screen.

This meant that someone had just prepared for this unique opportunity. Carson Palmer has played more than 128 games in the NFL.  He has thrown 2,560 passes. Of these, eight or nine were intercepted and returned by the other team. Someone on the broadcast team gathered these into a package that was immediately accessible. The director knew the package was there. The researchers knew how to call it up on demand. The announcers were fed some statistical information to support their innate knowledge. And, in less than a minute, everything came together on screen in compelling support of this specific tendency.

Imagine if you were this prepared every time someone asked you about your compensation plans. “Hey, what’s the rule on Change-In-Control for the 2007 Stock Option Plan and does that conflict with the COO’s employment agreement that he received when we was hired at that company we acquired in 2009?” What if you had an immediate (correct) answer every time someone asked, “Why do we have that feature?” or “How much cash and equity should we offer a Senior Software Programmer, in Chicago, IL?”

If we all prepared and stayed organized like NFL broadcast teams, much of the stress of our jobs would be gone. The stress of leaving a meeting with more things to do than when you walked in.  The stress of providing the wrong, or no, answer in an executive meeting. The stress of correcting administrative errors due to assuming we knew a rule, rather then knowing the rule exactly.

Of course, we’ll never get to a point where we simply have a team of specialists to help us get prepared. We do not work in an industry where there is always accurate statistical data, or in a world where our rules are applied exactly the same way every time.  But, we can, and should, consider making this our goal and begin working toward achieving it.  You never know when that one thing that has only happened a couple of times in the past will happen again, but you would likely be compensated and respected more if you had a ready solution when it came up again.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues. Dan is a co-author of “The Decision Makers Guide to Equity Compensation” , “If I’d Only Known That” and  “Beyond Stock Options.” Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Compensation In the Eye of the Tornado

In a world of swirling regulations, opposing forces of needs versus budgets and increasingly pressing deadlines, it is far too common to get caught up in the tornado that is our everyday work. Generally, when a tornado comes the best plan is to get out of its way. When that is not possible and the tornado takes hold, our survival instincts immediately look for a way out. I am here to propose a better plan. 

Think about it. What happens as you move towards the edges of a tornado? The winds move faster and faster and eventual you get flung out in an unexpected direction. Often this causes great harm to you and/or anyone or anything near the tornado. If you stay in the swirl of the tornado, the vortex may steal your breath away and items within the storm may catch you unaware. Since we know that escaping a tornado is a recipe for disaster and being tossed about is also a great risk, we should aim for a completely different plan.

When caught up in a cyclone of work and accountability, I suggest that you move quickly to the eye of the storm. The idea may be terrifying and opposite of your instincts, but the eye of a storm is calm and focused. You can operate from the eye while reaching out plucking from the melee those things that you absolutely must get done. You can focus on critical tasks and let the storm rage around you until, like it always does, it calms down and fades away.

An Executive Compensation Tornado

Year-end is approaching. The company just hired a new CEO, and at the same time the Board has brought in a new compensation consultant. A month ago your company announced that it would be acquiring a major competitor that has operations almost exclusively in countries where you don’t. The performance equity plan from three years ago will pay out at around 75% at the end of the year and the system you use only partially supports this transaction. Since the end of the last quarter you have had changes in three of your top five institutional investors. At least one of them uses an evaluation methodology you are not yet familiar with. On top of everything else you have been told that your HRIS system is going into lockdown for 6 months for an upgrade. Inevitably, the IRS has just rolled out another of its “almost year-end” rule clarifications.  Have I mentioned your compensation analyst is out on maternity leave and the SVP of HR is going through their first year-end at your company? The tornado is almost upon you (again), what will you do? 

1. Remind yourself of your priorities.
2. Focus on your priorities while reaching out to those around you for assistance.
3. Get the key items done while keeping an eye on the lower priority items. In short, do the most important things well, rather than doing everything poorly.

As we move into the final quarter of the year and prepare for the maelstrom that is typically called year-end, it is important to have a strategy to come out the other side as unscathed as possible, while still fulfilling the necessities of your position. Of course, afterward there will be a great mess to clean up. The difference is you will be able to address the mess instead of being part of it.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues, Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Compensation: The Word May Not Mean What You Think it Means

What does “compensation” mean? Those of us who work as compensation professionals consider it a positive, professional  word that speaks to people getting paid for services, effort or performance. Like many words, compensation actually means something else entirely.

From the Collins World English Dictionary

1.     the act or process of making amends for something

2.     something given as reparation for loss, injury, etc; indemnity

3.     the automatic movements made by the body to maintain balance

4.     the attempt to conceal or offset one's shortcomings by the exaggerated exhibition of qualities regarded as desirable

5.     biology: abnormal growth and increase in size in one organ in response to the removal or inactivation of another

Take a minute and read those definitions again. None of them are uplifting and positive.  In fact, each and all of them make my job feel a little unseemly.

Our starting point is a significant hurdle. If people have studied for the SAT vocabulary section (if they even still have that), they are likely to have different definition than ours. We assume that because we mean well and work to create fair pay programs, that people will just adopt our definition. Before you believe our own hype, ask yourself if your “compensation” program ever falls into any of the above definitions.

A.   Are you paying people to make amends for something?  Are your employees being asked to do something so difficult or distasteful that you owe them some sort of monetary apology?

B.   Are you providing reparations? Is your work-life balance so out of whack that pay is actually a replacement for lost time with family or passions?

C.   Are your increases and reviews so automatic that they have become just a form of balancing and correction for unexpected movements?

D.   Is your company hiding shortcomings by distracting people with extra money? If you looked from the outside would your pay be seen as “too good to be true”?

E.   Has your pay (especially for executives) increased abnormally in size in response to the lack of something else? Could you be paying your executives more than you should simply because of a lack of data or a weak Board of Directors?

This is a case where our actions must be far louder than words. We should compensate our employees not to apologize, but to thank them. Our employees should understand that we place as much value on them being emotionally, mentally and physically healthy tomorrow as we do about them getting the job done. Our pay programs cannot be defined as automatic adjustments. We must put real thought and effort into making our own performance more like a dance move and less like that head jerk that happens when you start falling asleep while sitting in an airplane seat. We must address our issues with real solutions and understand that money works only if everything else works, not in spite of it. We need to pay based on the strength of our firms, not because of poor information or limited resolve.

Compensation may not mean what you think it means, because your actions may not be reflecting your intent. Start by assessing your own definition of compensation versus the reality of what you are delivering to your staff. Once your words and actions are in sync, it will be far easier for employees see beyond their paycheck and get engaged in their jobs.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues, Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Either Put Me in Charge or Let Me Be a Lackey. I'm Fine with Either, But I Can't Do Both.

A friend recently updated their status with the title to this article. Ironically, I saw it just as I got off a call with a client who  was explaining that somehow she was expected to serve as both the strategic visionary and tactical processor for her company’s multi-national LTIP programs. The simple request in my friends status update seemed reasonable, well thought-out and familiar. As we traverse the crags of an uneven recovery, companies have found it difficult to create compensation plans that perform as expected. As budgets continue to be bound by uncertainty, companies have been unwilling, or unable, to hire tactical help. This leaves compensation departments in a quandary. When should we strategize and when should we make things happen?

For those of you who are feeling like your personality and activities are being split down the middle, I'd like to suggest a small exercise. Take 4 hours and block it off your calendar. (I know you don’t have 4 free hours, but trust me this may really help.) Let’s just pretend you blocked off 10:00am-2:00pm tomorrow.

• 10:00-10:30: Spend the first 30 minutes making a list of every strategic idea you would address if you were in charge of everything, but not responsible for doing any of the tasks. Rank based on compliance, urgency, cost and benefit.  Call this your “Strategy List”.
• 10:30-11:00: Focus the next 30 minutes making a list of every process you would improve if you didn’t have to worry about planning, administration or reporting tasks. Rank based on compliance, urgency, cost and benefit. Call this your “Tactics List”.
• 11:00-11:30: The next 30 minutes make list of all the tasks you would do if you were never interrupted by other things. Think about the minutiae and get granular. Rank based on compliance, urgency, cost and benefit. Call this your “Tasks List”.
• 11:30-12:00: Go through the Strategy, Tactics and Tasks lists and mark each item that ONLY someone with your skill set or better (not you) can get done. Then mark those that can be done by someone with a lesser skill set.
• 12:00-12:30:  Look at the remaining items. These are the things that you believe ONLY YOU can accomplish. Is this list realistic? Can anything be moved to one of the other lists? When this list is down to two or three items, you are set for a promotion.
• 12:30-2:00: Go have a nice lunch with a friend.  Celebrate that you just figured out how to put yourself in charge or be a lackey.

A very smart manager once told me “irreplaceable is unpromotable.” She made it clear that as long as I was the only one who could do certain things, I would remain the only one doing those things. Turns out, it’s basic logic. If you want to stop doing things on your list, you must first figure out a way for others to do them (or to make the items go away altogether.)

Look at your lists again. Which things do you really want to be doing? Of everything that’s left, can you train, hire, outsource, bring in consulting or temporary staff to get them done? If yes, put together a business case for exactly that. If no, keep working on your lists until the answer is yes. I have seen people change things in a week or two and I have seen cases where the changes were so large or numerous that it would take 6-12 months to get them done. I have never seen company where the changes were impossible.

The key is this: If you want to be in charge, the first step is figuring out how to be in charge. Regardless of whether you want to be a lackey or in charge, the first step is to define what those terms mean. The next step is to clearly communicate to those who can help make the change. This may be your boss, colleagues, or the staff working for you. The key is to show what’s in it for them (WIIFM). If they see the personal benefit, they may be inclined to help.  If you communicate things as a plea for help, you may get short-term traction, but nothing will really change.

So, put yourself in charge or make yourself the lackey, but only you can ensure that you’re not both.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues, Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Compensation Crack the Whip! Managing the Velocity of Change

I am sure that when some people saw this title, their first thought was of the mighty compensation professional standing  above the fray, bullwhip in hand, directing executives and employees to do what is required to ensure their company success. But let’s be realistic, that’s probably not going to happen. More importantly, in this case I am talking about an entirely different type of “crack the whip.” Changes to corporate strategy, compensation rules, market forces and other influences mean that compensation departments are often asked to move at a pace that leaves others behind.

Many of us played this game when we were kids. You and your friends got into a line. One person was chosen as the front or “head” and their job was to run around in such a way that the person at the far end was disconnected, or flung off, from the end of the line.  When this was accomplished you had “cracked the whip.”

Let’s talk about the velocity of change that's possible in our industry. Rules change randomly and more frequently than in the past. The market vacillates at speeds and levels that make compensation predictions difficult and unreliable. Corporate actions are kept secret longer, but expected to bear fruits faster. In addition, new executives are coming into companies tasked with making a big impact in short timeframes. While rapid change may work well for small groups, it can be counter-productive for large organizations. Far too often I see compensation professionals getting caught up in the melee and being the unwitting head in game of crack the whip. The results are seldom positive.

CEOs and other executives have short attention spans for our profession and limited understanding of its complexity. Also, we are all incredibly busy. Many of us have only a few windows a year where we feel we can focus on change. We think all year about potential changes and try to implement all of them during a month or two that is not dedicated to other “mandatory” tasks.

When information moved a bit slower and expectations were focused on months and years rather than hours and weeks, an approach of annual modifications generally worked. Today, very few companies or individuals have the attention span for large-scale compensation projects. We try to get things done before everyone loses focus or budget. As a result, employees are getting flung off into space, left to find their own reasoning for, or understanding of, compensation plans. 

Our past approach has been to connect everyone and run as the forces push us; while hoping that those at the end can hang-on. We need a process that better meets our current needs. Before you make your next philosophical or structural shift, ask yourself if the implementation and communication can be broken into smaller pieces.

Consider a creating a new process incorporating multiple steps. Compensation should still lead the way and stay in sight of the group following them. As we leap off of each step to the next, we must leave carefully documented instructions for followers. While this process can seem tedious and certainly requires more ongoing coordination and communication, it may help ensure that every critical employee makes it to the destination. To make our jobs easier and more effective, we must be willing to change our ways to meet the size, structure and information flow of our companies. You are not really leading your employees to success if the process ultimately cracks a whip that leaves some of them fending for themselves.

Dan Walter is the President and CEO of Performensation an independent compensation consultant focused on the needs of small and mid-sized public and private companies. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues, Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @Performensation and @SayOnPay

Greed, Rewards & the Self-Made Salesperson

Salespeople are different and so is the typical structure of the sales reward plan. But it can be interesting to consider more closely the reasons why these things have come to be.

Research conducted a few years ago by Sibson Consulting found that salespeople:

- Are more motivated by compensation (82% versus 62% for their fellow workers)

- Are more engaged (57% versus 51%)

- Have higher career satisfaction (57% versus 52%)

- Have a greater sense of commitment to (68% versus 62%) and affiliation with (67% versus 60%) their organizations

A Harvard Business Review post this week Are Top Salespeople Born or Made?, by sales strategist and author Steve M. Martin, explores similar ground in examining the sales psyche and its underlying motivational forces.

Based on his own research, experience and observations, Martin concludes that over 70% of top sales performers are born with natural instincts that play a critical role in their sales success.  Less than 30% of top salespeople are "self-made".  He also notes that for every 100 people who enter sales without natural sales traits, only 20% will ultimately perform at an above average rate.  So Martin turns his attention to this question:  What can make a self-made salesperson successful?  His own research and experience suggest four key elements:  language specialization (the ability to converse in the specific language of business operations, experience modeling (the ability to model the right sales approach based on past customer calls and interactions), political acumen and ... greed.

Yes, greed.  As Martin tells it:

We normally associate greed with a corrupt character or miserly scrooge. While this may be society's definition, in sales, "greed" takes on an entirely different meaning. In sales, greed and self-respect are closely intertwined. Greed can be thought of as the desire to be fairly paid for one's time. Time is a salesperson's enemy because time is finite. Time is the governor that determines how many deals can be worked and where effort should be focused. Salespeople are on a mission to learn the ultimate truth, "Will I win the deal?" Greed compels the successful self-made salespeople to push themselves beyond their comfort zone and ask difficult qualifying questions while continually pushing for the close. Conversely, the lesser successful self-made salespeople do not possess this inward drive.

If salespeople are more motivated by money than their fellow workers and greed (as Martin defines it) is indeed an important factor in raising the performance of those who may not have the "natural born" sales instincts to fall back on, what does this mean for sales rewards (Dan Pink's jokes about salespeople being coin-operated aside)?

In designing sales rewards, I don't think we can ignore the greed factor at play.  The key is to remember that greed - even using Martin's more innocent definition - can be our enemy as well as our friend.  On the one hand, we must design sales compensation plans that harness the drive and energy present in a group pre-dispositioned to be motivated by money.  On the other hand, we must consider and genuinely account for the kind of narrow focus that these kinds of incentives will produce to ensure that the right things happen and the wrong things don't.

My thoughts.  How about yours?

Image courtesy of the1percentdifference.com

Surveying Sales Incentives: True or False?

Have you ever found yourself in a situation where the competitive market price for your sales employees didn’t make sense?  Where the numbers didn't add up?  Usually it’s the incentive piece that has you double-checking; you’re expecting an incentive value of 25% or 30% of base pay, and the survey reports much less.  How can you report those figures back to management?  Your credibility, as well as that of your data source, would be under serious question.

An uncomfortable feeling, isn’t it?

Management wants to see competitive total cash compensation.  At the end of the day, what a reasonably performing sales employee should be paid.  How much should we be paying someone for hitting their quota figures?  That total cash amount would include the incentive portion added to base salary.   But sometimes the market picture isn't quite that clear.

A distorted view

Surveys typically report incentive amounts that were paid out, vs. a target or expected amount.  Which is okay, because the large amount of respondents within the survey tend to average out the better vs. weaker performers (high incentive payments vs. low) to present a reasonable approximation of target.  Which in turn is helpful when comparing your company targets against market realities.

However, to find a useful incentive figure presumes that the respondent payments represent an overall average.  And nine times out of ten that presumption is valid.  For sales jobs though, there is the likelihood that a much broader swing of actual payments would depress the average payment figure to something less than what the plan designers had intended.  Employees receiving little or no incentive would be counted along with those who have hammered their plans and received very generous awards.  The survey will report zero incentive payments in the results.

This creates a distortion, effectively low balling average incentive compensation (and total comp), as well as altering the view of competitive marketplace incentive targets.  This scenario is especially problematic when the sampling of participating companies is more scant than robust.

For example, if your sales job pays 40% of base salary for on-target performance, you would be somewhat concerned to see that the market reports a 20% incentive being paid for a well matched comparison.

Now look to your own organization.  How many of your sales employees achieve 100% target?  Does your average payment (including all sales employees) approximate the target payment percentage from the sales compensation design?  Likely your own number is markedly less.  If it's not, then perhaps your sales targets are too easily achieved.

This reporting situation is made more awkward (to explain) when instead of a compensation analyst it’s a wannabe HR generalist flipping pages through a survey and writing down as gospel whatever number they find.

So what is a survey user to do?

Be careful to check whether your survey source(s) is reporting paid incentive, target incentive, or both.  When using multiple surveys remember that blending target amounts with actual paid incentives (which may be unavoidable, based on survey formatting) may distort your results, at least somewhat.

So if the results you get look a bit squirrely, you need to use a little common sense before making any competitive pronouncements.  The same sense you would use when reading results from a good year's performance (economy flying high) vs. bad results (the great recession).  Both can distort how the market relates to your plan design and target total cash.

You might wish to factor in an adjustment percentage (5% or 10%) when assessing market results against your plan design target.  To counterbalance the impact of the zero payments.

Or leave it alone, but don't forget to tell (and periodically remind) management that the incentive cash figures for sales employees are likely lower than what your own organization is experiencing - and what are common practice plan designs.

So have a care when market pricing your sales staff.  And keep an open eye on whether the sales job incentive figures make sense.

Chuck Csizmar CCP is founder and Principal of CMC Compensation Group, providing global compensation consulting services to a wide variety of industries and non-profit organizations.  He is also associated with several HR Consulting firms as a contributing consultant.  With over 30 years Rewards experience Chuck is a broad based subject matter expert with a specialty in international and expatriate compensation.  He lives in Central Florida (near The Mouse) and enjoys growing fruit and managing (?) a brood of cats. 

Image courtesy of Leeks

The P90X Workout and Effective Performance Compensation

I like finding unique training tools for compensation professionals. My newest addition is the P90X training system.  For those of you who have not tried it, or seen the infomercials, I should describe the program. An individual works out at home using a series of DVDs that guide them through varying daily exercise programs. The sessions are lead by a dynamic leader named Tony Horton. Tony is in great shape and has very high energy. The program is very intense and requires a level of personal commitment from the individual. It is not easy, but those who complete the program seem to overwhelmingly recommend it. There are a few keys to the success of this system that can be applied to any variable compensation program.

1. Ensure that people are “ready” for the program. Prior to starting P90X you are asked a series of questions and put through regimen of tests that must be passed at a minimum level before you are allowed to start the actual program. Make sure that you take the time and effort to ensure that staff members understand the program and are fully prepared and equipped to attain the goals.
2. Show varying levels of achievement. Each session has three or four individuals performing the exercises at different difficulty levels or simple variations that keep you from getting bored. The easiest examples are realistic, but challenging. The most difficult levels are unlikely to ever be met by anyone but those in the very of best shape. They provide a goal regardless of the level of the participant.
3. Give people some room to fail. The instructor constantly reminds that you can stop and rest at any time. The goal is to complete the entire program, not to make a big splash on the first couple of days. You are given room to learn and grow, while being constantly motivated to join back in and achieve. Autonomy must work hand in hand with safety. In the end, people must be held accountable, but as they learn the process they must be allowed wiggle room to find their own way.
4. Make milestones and deadlines clear. A secret to the success of the program is the clock counting down for each day’s session. Some sessions are 15 minutes.  Some are 90 minutes. Most make you want to stop long before the time is up, but seeing the clock counting down reminds you that there is a clear end to the process. This allows you to push through when you can and take short breaks when you have to.  Seldom do you find yourself stopping in the middle (or beginning, or just prior to the end). People need to know how far they need to go and how close they are to the goal.
5. Track progress and measure success. Throughout that P90X programs you are reminded to write down the number of repetitions and amount of weight used for key exercises. This process allows you to quickly see progress over time. It’s very difficult to measure success if there is no clear starting line and no understanding of the path taken to reach the finish.
6. COACH! COACH! COACH! The instructor provides guidance to the people watching on TV and to those doing the exercises on the video.  This makes it clear that even the best occasionally need instruction. It also allows you to adjust your own technique on a real-time basis. Instead of waiting until after the program to provide a critique, the frequent reminders increase the speed of improvement and reduce the impact of doing something wrong.

I wonder how many companies utilize all of these lessons consistently. I believe that more variable pay programs would succeed if we followed these six steps. Let me know how you have implemented some or all of these steps into your own programs. What impact have they had? 

Dan Walter is the President and CEO of Performensation an independent compensation consulting firm focused on the needs of companies not in the Fortune 1000. Dan’s unique perspective and expertise includes equity compensation, executive compensation, performance-based pay and talent management issues, Dan is on the board of the National Center for Employee Ownership, a partner in the ShareComp virtual conferences and the founder of Equity Compensation Experts a free networking group. Dan is frequently requested as a dynamic and humorous speaker covering compensation and motivation topics. Connect with him on LinkedIn or follow him on Twitter @performensation.