Too Successful for Incentive Compensation

Compensation professionals have a basic mantra: Attract, Motivate and Retain. It is the basis for many companies’ compensation philosophies. It is included in a majority of public companies’ CD&As (Compensation Discussion and Analysis). It is foundation of countless sales compensation programs. But, what if your company is just too darned good?

I am currently working with a company in exactly this situation. Their product is so popular they simply can’t make enough of it. Their sales team is so effective that they have sold everything possible and still have consumers knocking on the door for more. It sounds great, but it is truly a problem.

Like many companies in the retail world, supply and demand doesn't drive their prices. A larger pricing structure exists for their industry. This means that they can't make more money just because people love their stuff. It also means that their incentive compensation programs have a conspicuous hole.

Sales people are often referred to as “coin operated”. This can be a great thing. As long as your products are strong and your company is fairly successful, paying sales people is competitive but predictable. But, what if the coin was taken away?  The calculation becomes far different.

A company now must find a way to keep people producing when their main source of motivation and money offers no additional upside potential until after the end of the year. Success has its downsides!

Wait there's more! Because revenues are essentially capped for the last couple of months of the year, the company won’t have additional budget to build a significant short-term “bridge” into next year. And, of course, the market is hot and competitors are continuing to call.

It is now here where the overall strength of your total rewards and human capital package become SO ESSENTIAL. This company has a great internal culture and it offers long-term incentives and ownership. It even has great programs that augment pay. The company prides itself in being a place where people want to come to work. It values its employees in ways that not only cost money, but require a little more time, effort and understanding.

Because the company has communicated a strong long-term strategy and has been built on a powerful internal culture, this company has an impressive foundation and useful tools to help keep employees engaged and retained during this fantastic albeit rough patch. If they had not spent the time and money over many years to build that holistic package, these critical team members would probably be the first to leave.

Compensation isn't the be all and end all of everything. When it breaks, and it will someday, your foundation had better be strong enough to fill the hole until you can correct the problem.

Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with corporate strategy and culture. Dan and fellow Compensation Café writers, Ann Bares and Margaret O’Hanlon are happy to announce our new book: “Everything You Do in COMPENSATION IS COMMUNICATION.” Dan has also co-authored of several other books including “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, “GEOnomics 2011” and “Equity Alternatives.” Connect with him on LinkedIn or follow him on Twitter at @Performensation and @SayOnPay.

Comments

[E. James (Jim) Brennan]

Good lesson, Dan, about how unique circumstances can reveal the relative weakness of money alone in the compensation arena. Of course, I would argue that "compensation" to me is more like a shorter synonym for "total rewards" than a term signifying "cash pay only." The entire employee value proposition is what "compensates" people for their work time, in my particular view. Some of those elements that attract, reward, incent, retain, motivate, inspire, engage, etc., are externally supplied by the enterprise and some are intrinsic to what the person (each being different) gets out of the situation. Cash is just another tool. Not all rewards jingle!

P.S. Your use of the ubiquitous phrase, "Wait, there's more!" hints of late night infomercial applications, but I stubbornly refuse to accept that Chia Pets, the Popeil Pocket Fisherman or Snuggie Blankets can be that popular.

[Tony Bergmann-Porter]

I'm too lazy to look it up, but I seem to recall a Peter Drucker quote about culture crushing strategy.

[Satya]

Dan, great point. When a company is selling their products like hotcakes, there needs to be more than compensation to entice and sustain the sales team. The foundation has to be strong enough (like you mention). That foundation should be built with multiple factors - everything that makes up the culture to non-monetary benefits. A company that values its employees in ways that not only cost money, but require a little more time, effort and understanding is one that has set this foundation. All these factors and more contribute to that high employee engagement, which ultimately goes full circle back to the foundation.

[Dan Walter]

Tony,

Culture does crush strategy, mainly because strategy that doesn't account for culture is bad strategy. But, in the case where culture is amazing, but pay is limited I think even culture may sometimes not be enough.

[Dan Walter]

Jim,

Total Rewards is a great term, but many still struggle to communicate this. In the face of limited monetary potential even the best total rewards will struggle.