Compensation Cafe

Compensation Cafe: Our Resolutions for 2013

Working on your New Year's resolutions?  Same here!

We at the Compensation Cafe (well, at least those of us hanging around here through the holidays) thought we'd share some of our thoughts on 2013 resolutions for all of us working in the rewards field.

Enjoy our Cafe Resolutions for 2013 -- and feel free to add one of your own in the comments!

Resolution #1 from Stephanie Thomas: Resolve to be consistent!

Let's make 2013 the year of consistency. Regardless of what kinds of compensation policies and practices you have in place, make a resolution to apply them consistently.

Resolution #2 from Margaret O'Hanlon: Resolve to better understand position in range!

What does it communicate in 2013, given everything that has happened to salaries in the last five years? Let's resolve to understand how the meaning of position in range may have changed and to clarify what to say to execs and employees about it. (I’m worried that our salary management practices may have lost their meaning while we’ve toiled to resolve merit budget issues.)

Resolution #3 from Jim Brennan: Resolve to focus on value!

Let's look beyond the distraction of cost and focus on value; pay more attention to how important something is rather than obsess over its price; remember that if it can be solved by money, it's not a problem but merely an expense item.

Resolution #4 from Jacque Vilet: Resolve to learn the business!

I would encourage all of us in Compensation (and HR in general) to spend more time talking with top management and learning more about the business. Benefit #1: By doing so our analyses and recommendations in the future should be more closely aligned with your business strategy. Benefit #2: Our top management will be impressed with our interest and increased knowledge of the business. Therefore our future recommendations to them should be viewed as more credible. A win‐win for everyone!

Resolution #5 from Derek Irvine: Resolve to praise and appreciate!

Honor the people in your life more with praise and recognition they deserve. Whether at work or at home, let's give the time and effort to notice more the people around us every day, what they do, and critically, the attitude they demonstrate. Then thank them for it. Nothing communicates respect, appreciation and, yes, love, more than paying attention and giving praise and thanks.

Resolution #6 from Ann Bares: Resolve to share knowledge!

With 2012 being heralded as the year of Big Data and given the heightened interest in evidence-based compensation management, the stakes are being raised on all of us for learning on the job. That being true, let's not overlook one great source of wisdom and hands-on practical experience: each other!  Let's make 2013 the year of knowledge sharing, where we make the effort and find the ways to tap into the lessons that can be drawn from our collective trials and errors, successes and failures.  Invite a colleague out for coffee and conversation, show up at your local professional association with a sense of curiosity and lots of questions ... heck, even consider a guest post or simply adding your comments to the caffeinated conversation happening right here at the Cafe. 

Happy New Year to all of you, from all of us at the Compensation Cafe!

Creative Commons Image "Happy New Year 2013" by ahsan_therock

Promotions Under the Looking Glass

According to research on reward fairness completed last year by WorldatWork, Hay Group and Loyola's Dow Scott, the number one focus of employee concerns about internal equity and fairness -- ranking higher even than base pay or salary increases -- is career development opportunities.  It is no surprise, then, to find that the management of promotions is becoming a topic of increasing importance.  I know that this is the case with many of the organizations I personally serve.

A helpful snapshot of the state of promotions can be found in just-released research from WorldatWork.  The study, conducted in August 2012 and reflecting the responses of 873 reward professionals, was also completed in 2006 and 2010, providing some historical context.  I had an opportunity to chat with WorldatWork Practice Leader Kerry Chou about the research; below are a few highlights from our conversation.

Promotions on the rebound.  Promotions, both in number (percent of employees promoted) and in mean size of promotional increase, dropped off during the recession but are showing signs of rebound.  The average study respondent reported that 8.4% of employees received a promotion in the most recent fiscal year, which is up from the 7.0% reported in the 2010 study but still well below the 10.5% reported in 2006.  Promotional increases follow the same pattern, with current (2012) mean increases of 7.4% for nonexempts, 8.7% for exempts and 10.2% for officers/executives.

More proactive communication? There appears to have been a dramatic shift in communication of promotional guidelines and policies in the past few years.  In 2010, most (63%) respondents reported that promotional guidelines and policies were mostly used to guide HR and management, though shared with employees when they asked.  In 2012, this number dropped to 13%, presumably (giving some benefit of doubt here) indicating more open, proactive sharing of promotional policy information.

Increased control and scrutiny.  Given that employers have kept a somewhat tight lid on promotions during tough times (and knowing, as the earlier Hay research confirms, that fairness in internal career opportunities is a top employee concern), it is not surprising to learn that there is more careful scrutiny and control of promotions today than a few years ago.  For example, in 2010, 77% of respondents reported that their organization did not set limits to how many grades/bands/levels employees could move in a single promotion.  In 2012, only 7% reported no such limits.

As with many reward elements, Kerry notes, we may see many of these practices and trends -- and particularly the higher level of caution -- shift as the labor market turns and the demand for talent rises.

How do the findings of this research compare with promotional practices in your organization?

Ann Bares is the Founder and Editor of the Compensation Café,  Author of Compensation Force and Managing Partner of Altura Consulting Group LLC, where she provides compensation consulting services to a wide range of client organizations.  Ann was recently named President Elect of the Twin Cities Compensation Network (the most awesome local reward network on the planet) and has joined the Advisory Board of the Compensation & Benefits Review, the leading journal for those who design, implement, evaluate and communicate total rewards.  She earned her M.B.A. at Northwestern University’s Kellogg School and is a bookhound and aspiring cook in her spare time.  Follow her on Twitter at @annbares.

Creative Commons image courtesy of Images_of_Money

Give Up Your Employment Rights for Equity Compensation

The UK recently unveiled a controversial “share for rights” scheme (plan) that would allow employees to receive tax-exempt company shares in return for giving up common employee rights such as unfair dismissal, the right to request flexible working, redundancy pay and time off to obtain additional job training. Female employees would also be required to give the company at least 16 weeks notice of return to work following maternity leave (rather than the standard 8 weeks). I understand that some employees in the US would simply love to have some of these rights, much less being able to voluntarily give them up for a tax benefit. Think of the employment rights that your employees have. Which of them would they be willing to give up (and for how long) in return for equity in your company, even with a tax benefit?

This proposed scheme has received mostly negative comments from the UK business community. It has been communicated that the purpose of the program is to help relieve the stress on entrepreneurs of dealing with both start-up capital and employee law issues. The initial questions are: 1) Will any company actually roll this out to their employees? 2) Will employees be willing to give up their rights for a stake in the company? The longer-term questions are a bit more interesting.

Let’s start with what happens when people leave. The company can create the right to repurchase the shares at a fair value, but will this actually end up costing more than the rights given away? Do companies want to create a “contractor culture” for their entire company? Can they afford it in cost, alignment, motivation and attraction? It would pit your company’s stock price against another companies’ total compensation and rights package. Imagine the complexities in communication.

How would this sort of program impact other more traditional forms of equity compensation? If your company was already giving up significant chunks of equity through a program like this, would you still feel motivated to offer stock options, restricted stock or an employee stock purchase plan?

Lastly, what is the price of employee rights? The UK scheme would allow the exchange of these rights for a minimum of £2,000 and allow a maximum tax exemption on £50,000 of gain. The value of these shares would, of course, move with the underlying stock price. If the company fails, the employee has neither rights nor compensation.

If a program like this was introduced in the US, what rights should it include and what value would you attach to them?  More importantly, would you be, like only 5 of the 209 companies that responded to the UK government when consulted on this scheme, in support of this idea or would you be in the 98% who did not express direct support (or expressed negative opinions)?

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 Know That”, “GEOnomics 2011” and “Equity Alternatives.” 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 at @Performensation and @SayOnPay

The Oops! Factor

Can you recall an instance at work where you made a mistake, an error in judgment, a bad decision?  An "oh cripes!" moment that you would have liked to have had back again?  Perhaps it was a rash decision, a lapse in sound thinking, or simply poor planning that caused you to take a wrong step.  And if you were unlucky, that error was noticed far and wide.

You remember how you felt then, don't you?  You were likely embarrassed, surprised or even angry.  Certainly you felt awkward that you had messed up and that people had noticed.  To cap it off the wrong people had noticed, hadn't they? 

Bet you won't do that again!

Perhaps not, but that doesn't mean you shouldn't stick out your neck again.  Turtles don't make for good leaders.

Because when we make a mistake and learn from it, when we use a negative experience to help us prepare for the next opportunity, we grow as professionals - as individuals and as leaders.  That painful lesson will be more deeply embedded in our consciousness because of the fact that we did screw up, made a bad decision or used poor judgment.  It's human nature for us to remember our foibles, and because of that to hopefully not repeat where we had burned our fingers.

If we were risk adverse and played it safe throughout our career, if we avoided decisions, kept our head down, didn't stretch ourselves, we'd likely never fly high.  We'd also never be noticed by the higher ups and our career would never quite get us where we wanted to go.

No pain, no gain?

If you use your mistakes as a learning experience, what would you learn if you never make a mistake?  Your ego would swell with self-importance and what had been healthy self-confidence would've morphed into over-confidence.  You'd start reading your own press releases, and on that pathway lies a steep cliff followed by a fall.

I remember my father telling me, "at least try."  That's good advice for managers too.

So take a calculated risk.  Not a roll of the dice, but a decision or an action based on your knowledge and experience.  Use your professional judgment and put a stake in the ground.  Stand up for something.  Learn from the experience.  And if you stumble, pick yourself up again and get back in the fray.  Just don't make the same mistake twice.

While most companies talk about the advantages of risk taking, many don't walk the talk.  Instead, some organizations simply get rid of those who had the misfortune to make a mistake.  In that environment there's always someone trying to trip you up (passive resistance, nay-sayers, the overly critical, etc.), or to take advantage when you stumble (enter the political animal).  All of which sends a powerful message that risks are only entertained when in fact they aren't risks at all.

On the other hand, creativity and innovation are fostered in an environment that nurtures decision-making and encourages measured risks as a method of stretching oneself.  Instead of killing the risk-taker when they stumble such organizations seek to stretch the capabilities of their employees by encouraging them to do more than they thought themselves capable. 

It's only a risk if there's a chance of failure.  Employees who are not afraid of making decisions, of standing up for themselves, of taking a risk for the good of the organization - they should be valued, not criticized or penalized.

In an atmosphere free of threats and traps the leader can emerge and thrive - to the betterment of the company and the employees. 

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.  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.

Creative Commons image courtesy of Leeks

The Best of the Compensation Café 2012 – A Holiday Gift from Us to You

Each year the crew at the Comp Café writes about 200 articles on all things compensation. Many of them are actually pretty darned good. In this spirit, each Café writer has selected a favorite post of 2012. Some were read widely and shared throughout the industry, others are hidden gems you may have missed when they were first posted. Here’s your chance to have a little thought-provoking, cheeky, holiday reading while you wait for reindeer hooves upon your roof. These are some of the best from the best compensation writing team in the business (or one of the best) (maybe around the median?) (nah, we’ll go with the “BEST”). Enjoy and get inspired for a 2013.

Ann Bares: Rewards & Gamification: New Frontier or Next Big Fad?

Used to be that the notion of playing games at work meant sneaking in a hand of Solitaire during a slow moment.  Now gaming is drawing attention as a way to connect people to reward programs and focus them on goal achievement.  Is this the new frontier of engagement or just the next fad?

Jim Brennan: The Compensation Cookbook

Bowing to the unceasing demands of compensation people for a one-stop source of all the secrets of the trade, E. James (Jim) Brennan dedicated his April 1 article to breaking news about the forthcoming Compensation Cookbook from the renowned author H.R. Screwtape.  The Compensation Cookbook is expected to be the last word on 21^st Century state of the art in the field of total rewards.  Readers are encouraged to place their advance orders as soon as possible.

Chuck Csizmar: Balancing Comp 101 with the Workplace

The contribution you can make to your organization is in blending technical knowledge (the how-to) with seasoning and experience to understand what will work for your organization, considering culture and management bias.  Technical knowledge will give you the same answer every time, but knowing how to use that knowledge like a craftsman’s tool to aid in achieving business objectives – that's the key to success as a Compensation professional.

Derek Irvine: You Can Never Give Too Much Recognition

One question I’m often asked is, “Can’t you recognize too much or too often? Doesn’t that water down the effect and impact of recognition?” My answer is nearly always to ask another question, “Have you ever received too much recognition?” The answer is invariably, “No.” Find out why in this post (including why the new Wreck-It Ralph animated movie is on my must-see list).

Margaret O’Hanlon: Your Comp Program Speaks for Itself. Are You Comfortable with That?

It’s tough to be candid with yourself about pay-for-performance practices. This article starts with vignettes from a few companies that don’t realize that they are stumbling. When managers don’t identify high performers accurately (because they prefer to reward their favorites), they don’t realize they’re throwing cold water on productivity and creativity. Most companies can’t afford to stumble these days. Q1 is a great time to both make resolutions and actually start work on them. Here are issues that you can, and should, address in your own backyard to sharpen the focus on results at the same time that you manage the numbers.

Laura Schroeder: Moneyball

Companies tend to overvalue top talent and undervalue everyone else. Assembling a team based on the ‘best’ people you can get for your money isn’t a winning strategy unless money is no object, and even then it’s questionable. This post discusses how the right B team can kick the A team’s butt and how that fact can impact hiring, rewards and performance.

Stephanie Thomas: The Compensation Function is Evolving

This was the Cafe's first infographic – proof that we are evolving right along with the profession. Creating visually stimulating translations of data can be challenging, but the results speak for themselves. It’s great to see that most comp pros (at least those included in the survey) are on the right track. - they recognize the importance of communication and consistency, and are moving toward refinement and specificity. I think this can only improve the compensation function.

Jacque Vilet: Out With Metrics ---- In With Analytics!  

I feel strongly that when compensation decisions are made, Compensation professionals need to use analytics that look toward the future rather than metrics that focus on the past.  The use of analytics will allow Compensation to more closely align a total rewards strategy with the company’s business strategy --- and that’s Compensation’s most important responsibility.

Dan Walter: Is it Time to Change the Equity Compensation Paradigm?

I love equity compensation, but am not currently enamored with how it is being used. This is the starting point for a discussion on how to best evolve equity compensation. The instruments, vesting schedules and stated goals for most of these plans have changed very little over the past 20 years. While people are naturally resistant to change, we are also supremely adaptable. What can we do to restore the purpose and luster to these programs?

Note: to see more from any of the Compensation Cafe writers simply copy and paste their name into the search field on the left. We bet you will find some additional articles that will make your “best” list for 2012.

All the best,

The Compensation Café

(And a special "thank you" from the Editor to Dan, who took time out of a busy year-end schedule to coordinate and compile this gift to our readers.)

Your Employees' Resolutions for the New Year

At the start of a new year, many of us promise ourselves that we'll get organized, make time for planning and goal-setting, or communicate more effectively. What will your employees be thinking about as the new year rolls around? Here's a summary of employees' top priorities for 2013.

Stephanie R. Thomas is an economic and statistical consultant specializing in EEO issues and employment litigation risk management. Since 1999, she's been working with businesses and government agencies providing expert quantitative analysis. Stephanie's articles on examining compensation systems for internal equity have appeared in professional journals and she has appeared on NPR to discuss the gender wage gap. Stephanie is the founder of Thomas Econometrics Inc., the host of The Proactive Employer radio show, and author of the upcoming book Compensating Your Employees Fairly: A Guide to Internal Pay Equity. Follow her on Twitter at @proactivemployr.

5 Ways to Keep the Grinch from Stealing Holiday Spirit at Work

Regular readers likely won't be surprised to know that Laura Schroeder's post yesterday struct a chord with me. I encourage you to read the post for a good story of a boss understanding precisely what an employee needs at this time of year.

That got me thinking about what might be the more typical employee experience at this time of year. Companies invest a good deal of money in well intentioned, but poorly planned employee rewards or bonuses at this time of year. The result of the lack of foresight - employees feeling like the Grinch stole their holiday cheer.

But it's in your power to stop the Grinch. Just remember these five lessons of holiday joy for employees:

1. Give employees a bit more latitude in their schedules. Everyone is harried this time of year with gifts to purchase, trips to see family to plan, kids' school programs to attend. When employees come to you with a reasonable request for an extra hour or two time off to take care of these needs, give it to them graciously. Be generous and go so far not to count it against their vacation or paid-time-off account.
2. Turn a blind eye to extra time spent at the water cooler or coffee pot. In these last days leading up to Christmas (and likely worse next week between Christmas and New Years), employees will spend more time catching up with their colleagues on holiday plans, sharing family holiday cards, and the like. Let them. It's an excellent opportunity to build relationships between employees, which influences teamwork and certainly can speed projects along in the new year.
3. Don't give perishable gifts - especially if you don't also offer a way to refrigerate those gifts throughout the day. Giving employees turkeys or hams at Christmas is bad enough, but given fresh turkeys or hams, and then expecting employees to store them under their desks or in their cars for the day, is simply throwing your money away.
4. Do give employees the gift they deserve most - your appreciation and esteem for a year's worth of hard work and achievement. Like in Laura's post from yesterday, take the day to write a detailed note or message of appreciation, calling out specifically ways the person helped you, the team, and the company throughout the year. Make it personal and meaningful, and I guarantee it will be a gift they treasure.
5. Give employees a break from all non-essential duties during the holiday week. Frankly employees working the week between Christmas and New Years are likely not as focused or engaged as we'd like anyway. Acknowledge the natural distractions and give employees the gift of relieveing them from all but the most necessary, customer facing work.

It doesn't take a lot of effort or cost a lot of money to spread cheer among your employees this holiday season. Some might argue that all of my suggestions cost money, if only in lost work. Let's be honest with each other. The work wasn't getting done anyway. You've just formalized this by giving permission and telling employees in a subtle, kind way, it's your gift to them. Believe me, the return in employee gratitude and loyalty for your gesture is worth it.

What other ways can we keep the Grinch at bay?

As Globoforce’s Head of Strategic Consulting, Derek Irvine is an internationally minded management professional with over 20 years of experience helping global companies set a higher ambition for global strategic employee recognition, leading workshops, strategy meetings and industry sessions around the world. His articles on fostering and managing a culture of appreciation through strategic recognition have been published in Businessweek, Workspan and HR Management. Derek splits his time between Dublin and Boston. Follow Derek on Twitter at @DerekIrvine.

Photo Credit: Wikimedia Commons

'Tis the Season

I’m going to do two things this year I almost never do: I’m going to quote Mother Teresa and recycle a blog post called All I Want for Christmas. 

It’s not that I can’t be bothered to write something new.  It’s that as I sat down to write a post about expressing appreciation to the people you work with I realized I’d already said most of what I want to say on this topic.  So, here goes:

“I once had a really great boss.  She spoke honestly, listened sincerely, never took credit for someone else’s work and balanced her own heavy workload with coaching and developing the people on her team.

She was one of those rare people who can make a run to Starbucks feel like mentoring.

One year at Christmas I got my regular Christmas bonus and a small gift from my boss with a card.  It was an orange cinnamon scented candle from L’Occitane, exquisitely wrapped.  Just a simple gesture of thoughtfulness.  The card included a hand-written message thanking me for several specific contributions I had made over the year.

Now, I’m a rational person.  If I had to choose between a scented candle from my manager and a cash bonus, I’d take the money. 

But the gift meant more.  In particular, the thoughtfulness behind the gift and the personal message that said she was paying attention and valued my work.

If you manage a team, you may not be able to give your team a Christmas bonus this year.  Fortunately, that needn’t stop you from giving small gifts of your own with a personal message of thanks.

I’ve had several other great bosses with different strengths and personalities but one thing they all had in common was that they showed appreciation for my work.

So, don’t give people  the same old song this Christmas about how there’s no money for raises or bonuses.  Why not give them something to sing about?"

This year I’d like to add that it's not just about managers appreciating employees.  We should all appreciate each other in the workplace because everyone we work with has made some contribution to our work, our success or our personal growth. 

Take a moment to think back on the year… 

Think of the people you admire or  enjoy working with and find a way to let them know.  If this feels awkward, think how nice it felt when someone you work with told you they appreciate you and pay it forward.

Next think about someone you work with that’s difficult to get along with.  Was there ever a moment where they unexpectedly supported you or perhaps shined a new perspective on a difficult problem?  There’s surely something you can feel grateful for, even if it’s just teaching you to be a better and more patient person.

And finally think about your manager.  Maybe you haven’t gotten all the appreciation you felt you deserved this year but we’re all so selfless, hard-working and incredibly amazing it would take a superhuman manager working around the clock to channel enough appreciation for what we do. Try to be generous and remember that managers need appreciation, too. 

This is the season to appreciate what we have and the people who have helped us grow along the way.  At least until it all starts over again in 2013...

Happy holidays!

Laura Schroeder is a global talent specialist at Workday, headquartered in Pleasanton, CA.  She has nearly fifteen years of experience envisioning, designing, developing, implementing and evangelizing global Human Capital Management (HCM) solutions and holds a certificate in Strategic Human Resources Practices from Cornell University.  Her articles and interviews on HCM topics have been published in the US, Europe and Asia.  She lives in Munich, Germany and enjoys cooking, reading, writing, kick boxing (well, kicking things) and spending time with friends and family. If you want to read more from Laura, check out her talent management blog Working Girl or follow her on Twitter @WorkGal.

Just Give Me the Cash

W-2s issued at the end of January 2013 by large employers will display the cost of employee health care coverage.  This new number could send shock waves through American society. 

The Patient Protection and Affordable Care Act of 2010 (PPACA, better known as “Obamacare”) says, “The purpose of the reporting requirement is to provide employees useful and comparable consumer information on the cost of their health care coverage.”  Useful for what, one might ask?  Some would charge it is useful for taxation, employee agitation and union organizing.  Others would say that as long as health benefit costs remain tax-deductible, the taxing authority (the U.S. government) has a right to demand that those costs be disclosed to the covered employees.  Why that is important has not been openly discussed.  What it will do remains unknown but predictable.

The W-2 will provide “comparable consumer information” to what consumer?  Guess that depends on whether the employer is the sole “consumer” paying for the health plan or whether the employee is bearing any or all of the cost.  Even if the company is fully underwriting the entire cost, intelligent employees (and who would admit to hiring any other kind?) will quickly note that those payroll amounts could have gone into their personal wages and salaries.  Most employees would prefer to see those same dollars deposited in their pockets.  Unless they were one of the rare individuals whose expensive personal or family health care bills were covered by the insurance reserve pool accumulated from the sums unspent on hundreds of covered families who filed no claims, they will have no idea of the real situation.  This is a recipe for guaranteed dissatisfaction.

What will be the behavioral result of this “informational disclosure”?  All the research indicates that the dominant employee hunger for instant gratification will undercut responsible employer efforts to protect their people.

Healthy workers may recklessly declare, “I’m never sick.  Don’t need no stinking health care insurance.  Just give me that money!  After all, it’s mine.”  Argument will inevitably follow.  People who received coverage they didn’t use could rightfully claim that those same sums could be better applied to their personal bank accounts.  Employers (and particularly the handful of still-surviving benefit mangers) might respond that the moment baby gets sick, that same person will likely scream bloody murder and demand that the company retroactively reinstate their pricey family coverage health benefit plan.  It will be a fine mess. 

Code DD in Box 12 of the W-2 may foment a backlash against employers who fail to divert the health care cost into base pay.

What do YOU think will occur?

E. James (Jim) Brennan is Senior Associate of ERI Economic Research Institute, the premier publisher of interactive pay and living-cost surveys. Semi-retired after over 40 years in HR corporate and consulting roles throughout the U.S. and Canada, he’s pretty much been there done that (articles, books, speeches, seminars, radio/TV, advisory posts, in-trial expert witness stuff, etc.), and will express his opinion on almost anything.

Sales Compensation 101

I used to think that, of all the compensation schemes out there, the most detailed, the most carefully crafted, the most committed to memory were for the sales force.  Like the stereotypical jail-house lawyer, sales employees could detail to management the inner workings of their incentive plan - and often did.  Nothing got past them.

That may still be true in your organization, but with increasing frequency I've found myself immersed in a client's troubled sales compensation programs, struggling to salvage the incentive schemes of companies whose reward train had plunged off the track.

Studies have shown that it's often not the design but the communication of the sales comp design that is to blame.  Even quality programs find it difficult to overcome the damage that can be caused through errors in explanation.

Flubbing the message

Plan effectiveness is weakened when a company fails to properly inform their sales force as to what's expected of them, and how they'll be rewarded.

Here's what should be included in every sales plan document.

• Show the money:  Highlight the target incentive figure and you'll get their attention.  The more at risk the greater likelihood behavior will change.

• Clarity of objectives:  If you want to steer  performance, provide a sense of direction.  The sooner an employee knows what you want them to do, the sooner they'll start to focus.

• Clarify thresholds and caps:  Two common questions are, at what point do payments start, and are they capped?

• Administration rules:  Not exciting but necessary to help employees understand the plan and how it works. 

• How much, and for what?:  Show how payments progress as performance increases, whether using percentages, commission rates or a combination.

• Estimate earnings:  Examples drive the message that better performance delivers greater rewards.

• Limit key objectives:  Focus employee efforts to maximize performance.  Provide no more than four - with none weighted less than 10%.

• Appeal process:  Explain the method of handling payment calculation issues.  Questions are to be expected, but don't make employees search for remedies.  Be upfront about how to deal with problems.

Your plan should be distributed before the start of the performance year.  Too many plans are still being "finalized" during the 1st quarter.

Directing Traffic

Left to their own devises some sales employees could drive the business off the cliff and into deep financial problems - if the pay is good.

The wrong kind of selling activity can also pump up revenue without a corresponding increase in margin. Generating revenue without profit is just being busy.

Failure to provide proper written communications  will gain you the following:

• Confusion:  What exactly am I expected to do?  How will I be rewarded?  These are questions you don't want your employees to be asking.

• Dissatisfaction:  An employee unhappy with their incentive plan reduces their degree of enthusiasm and engagement.

• Unwanted activity:  Chasing sales that don't maximize margins or don't push new product / service lines.

• Unrealized expectations:  "But I thought my check would be for X"? or  
  "I didn't know you wanted me to focus on that."

• Missed opportunities: if your marketing focus points in one direction while your sales force heads in another, the achievement of critical results (i.e., revenue, new customers, market share, profits, etc.) may be left in limbo.

If you know what's considered "success" for the company, and you aim your rewards toward achieving those objectives, then you've created a win-win scenario for the employee and for the company.

Just make sure you tell the right folks.

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.  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.

Creative Commons image courtesy of epSos.de