How is compensation like a cupcake? Is it just that people crave it, or is it something far more fundamental? I’d like to suggest that it is in understanding the important difference between frosting and icing.
Think about generic plans created from stale boilerplate documents. Or, communication programs which teach little and inspire nothing beyond high-level overviews or lengthy legal documents. Or, even sales compensation plans promising commissions and bonuses, but don’t drill down into the true cause and effect of the sales process. These are examples of programs plagued by the “icing on the cake” excuse.
My wife loves cupcakes and considers herself somewhat of a connoisseur. Throughout her cupcake journey, I have studied the cupcake more than I care to admit. When creating the cupcake there are the requirements and the extras. The obvious requirement is the foundation made up by the cake. It can be comprised of a wide variety of substances and one or multiple layers. The common extras are the icing decorations that give the cake its unique character. These are usually flowers, designs and piping that are strategic placed and serve the purpose of making the cupcake pretty and personalized.
However, there is confusion regarding the not-so-obvious essential, which is the frosting. Frosting is the layer that is part of every bite. While frosting does look good, that’s not its true purpose. It helps fill-in or cover-up a cupcake’s deficiencies. It moistens the dry and sweetens the bland cake foundation.
I recently spoke to a friend about the stock options her company offers. We spent 10 or 15 minutes discussing the plan. We talked about how and why stock options work and some of the risk reward scenarios that can unfold. We also discussed how her options could have value. At the end she said, “These are great, why doesn’t my company want me to understand them? What’s the downside for them?” I responded, “I am sure they want you to understand them, but sometimes that part of the equation is seen as icing on the cake.” I realized immediately it was a terrible metaphor.
Icing is something a cupcake can live without. Understanding the purpose and potential of complex compensation is far more like frosting. Without it your programs simply won’t work. A sales compensation program must fully account for the underlying drivers of success. A generic plan is like a carrot cupcake without the cream cheese frosting. In other words, it looks like health food, not dessert. In our attempt to navigate the increasingly complex world of compensation, we often forget to finish our cupcake. Is it any wonder that our employees are not interested in eating it?
Spend the additional hours or money it takes to finish things up and frost your compensation plans. We might not always have time for the pretty icing flowers and trim, but that does not give us an excuse to skip the frosting. When we’re busy we sometimes make ourselves feel better by reclassifying essentials as “icing” or “nice to have”; when they are truly “must have.” If we approach compensation like cupcakes, we may find that our employees line up for more, rather than complaining about whatever they get.
NOTE: Tomorrow, April 26, 2011 I will be writing a guest article for Robin Ferracone’s Executive Pay Watch Blog at Forbes.com. I will be discussing transparency for proxy advisory firms. Come on over a take a look! http://blogs.forbes.com/robinferracone/.
Dan Walter is based in San Francisco, CA and 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 programs, performance-based pay and talent management issues, Dan is on the board of the National Center for Employee Ownership, helps create ShareComp, a virtual conference addressing equity compensation and founded Equity Compensation Experts a free networking group with more than 1,100 members. Dan is also in high demand as dynamic and humorous speaker. Connect with him on LinkedIn or follow him on Twitter @performensation.
Nice imagery, Dan. Made me think of our Easter cupcakes yet to be consumed, and how they call out my name.
You also made me think of so many companies who go almost all the way with their comp plans, only to stop and wipe their hands so close to the finish line. They don't properly communicate, or even "sell" their plans.
The wonderfulness of a plan is rarely intuitive to most employees; in fact, the opposite is more common. So you're right, spend the time and money to finish the job. Make sure your employees understand not only the what, but the why.
Posted by: Chuck Csizmar | 04/26/2011 at 07:01 AM
Presentation value is vital, in human interactions of all kinds. Is it just my imagination, or does every truly good compensation plan really have a certain simple elegance to it?
Posted by: E. James (Jim) Brennan | 04/26/2011 at 04:35 PM
@Chuck
It is the small things that make plans different from each other. It would take an impressive employee to glean these details without help.
@Jim
While most great compensation plans do have a simple elegance, that too is comparable to frosting. A great frosting is far more complex to create and requires far more attention than most would possible guess.
Posted by: Dan Walter | 04/26/2011 at 04:52 PM
Taking it a step further.. frosting is nice, having properly baked muffins is essential.
By this I mean that it is important that you understand the various implications compensation plans may carry. Modeling and scenario testing is the only way to ensure your comp plan doesn't cause undue stress.
-Conner
Posted by: sales compensation | 05/04/2011 at 04:06 PM
@Conner:
Excellent point! Thanks for the comment.
Posted by: Dan Walter | 05/04/2011 at 04:52 PM