Compensation Cafe

Cafe Classic: Hammers, Nails and our Compensation Biases

Editor's Note:  We all have our "best way to fix a compensation problem" biases. We work better (and produce better results) when we are aware of them.

It's called the law of the instrument.  The concept is said to have originated with philosopher Abraham Kaplan, who said "I call it the law of the instrument, and it may be formulated as follows: Give a small boy a hammer, and he will find that everything he encounters needs pounding."  The more popular version comes from Abraham Maslow's The Psychology of Science (1966) and is typically presented as "if all you have is a hammer, every problem looks like a nail."

Sound familiar?  It ought to.  The law of the instrument is alive and well in the field of compensation, compliments of the biases we all hold.

Let's start with the more general bias, that compensation is the fix for every organizational challenge.  Turnover an issue?  Pay them more!  Engagement a problem?  Pay them more!  Employees not meeting performance standards?  Put in an incentive plan (a.k.a. pay them more ... but on a variable basis)!

Never mind taking the time to understand and clearly define the problem so that we can ascertain the best solution.  Pound that hammer and move on!

Sometimes the general bias is ours.  Whether through lack or experience, maturity or confidence, we simply respond to situations with the tool we have most readily available.  Other times, we encounter bias in the leaders we are trying to serve or advise.  They want the quick fix; they don't want some HR or compensation professional digging around in their area for information or answers.  Backs up against the wall, we give them what they want.  And when it doesn't work, they rail against us for our lousy pay plan, which fails to fix a problem that had nothing to do with money in the first place.

Then there are the more specific biases we have toward a particular compensation approach or choice, either because we've had great success with it in the past or just because we find it intellectually appealing.  It may be a particular affection for broadbands, for group incentives or for skill-based pay.   It may be a specific metric that we believe belongs in every sales compensation plan, regardless of the circumstances.  It may even be that we think 360 degree feedback is always the right, or always the wrong, thing to do.  It may be a smaller, more finely tuned hammer, but we swing it just as indiscriminately.

Bottom-line, we all have our biases.  The trick is to be aware of them, be open to understanding the unique business and people reality in every organizational challenge, and be willing to explore other possibilities beyond pounding something with our favorite hammer.

That's what I think.  You?

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys hiking, reading and hanging out with family in any spare time.

Creative Commons image "Hammer" by homespot hq

Four Compensation Predictions for 2022

This is the thirteenth year I have written a post during the last week of the year. I seldom make predictions for an upcoming year because compensation generally evolves so slowly that any real changes take several years to come to fruition. As we head into 2022, I am going to break that tradition and make a few predictions. I think we have a unique opportunity in front of us and many compensation professionals will relish the challenge.

1. Base pay increases in many industries will be far higher than we have planned.
   if you have planned a 4% budget for 2022 and use a lag, or lead/lag, strategy, please expect to lag from very early in the year. The market is unlikely to cool. Executives are being held to high standards when it comes to growth. Investors have put a ton of money into the market. All of these will factor into increases that will continue to rapidly outpace what has become the 3% norm for the past decade and beyond.
2. Survey providers will be pressured, and perhaps forced, to address the inaccuracy of LTI data in surveys.
   This is especially true in private company data, but expect to see more demand for global granularity, award details like vesting and performance criteria, and better explanations of how values were determined. This is a weak point in the world of compensation and companies are rightfully impatient to see better data.
3. Survey providers will begin categorizing positions into “onsite”, “hybrid”, and “remote”. Survey data without this level of specificity is putting every competitive company at risk. Expect to see the first “pulse” or “spot” surveys on this topic before the end of Q3. Expect this to be a normal part of survey submissions before the end of 2022.
4. Expect to see more companies visibly break the Base/STI/LTI paradigm that has dominated compensation philosophies for 15 or 20 years. At some point, you cannot differentiate your offers with just a bit more base pay. Short-term incentives will likely become shorter to address that speed with which pay is changing. LTI programs are already changing. Leading-edge companies explored more new vesting schedules and LTI plan design elements in 2021 than in any year in recent memory. This information will become more well-known and inspire hordes of other companies to move away from the lock-step adherence to stock options with a 4-year vesting schedule or RSUs that are similarly designed. If the long-time programs worked as advertised our ability to attract people would be higher and our turnover would be lower. It’s time for a change.

I am sure we will see other changes, just like I am sure at least one of the above will prove to be completely wrong. 2022 is sure to be another interesting year. In 2020 we just did our best to react to a world that became almost instantly unfamiliar. In 2021 we weathered a push for hiring unlike any year in recent memory. In 2022, we will get our feet underneath us, gather up our balance and leap forward into a new approach to pay that may provide a foundation for the next 10 years. There is no reason to wait. The future is yours to create.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

Cafe Classic: He Sells, She Sells... But Why and How?

Editor's Note:  Gender was a less polarizing topic a few years ago when I first highlighted the research noted below.  What are your thoughts on this Classic "gender and reward" post?  Would the findings of this research differ if it was conducted today?

On the heels of the interesting comment conversation that followed by my recent Classic post on gender differences in response to rewards, where I was quick to footnote that the research and its conclusion as not applicable to sales compensation, I stumbled into this study.  Naturally, I had to share it with you here.  I don't mean to continue diving too deeply down the rabbit hold on gender differences - but I did think this an interesting bookend to that conversation.

The original intent of the study, The Similarities and Differences Between Men and Women in Sales by Steve W. Martin, a sales linguistics expert who gathered data via an extensive survey from over 1,000 sales professionals, was to understand the specific traits, actions and habits associated with sales performance.  It was not designed to compare male and female sales pros.  Rather, the gender differences jumped out as the data was analyzed, prompting the development of this research report.

Here are a few interesting findings (there are many others as well, if you're willing to dig into the 50 page report).

Why I'm in Sales

While the motivations that lead to a career in sales probably vary as widely as the people themselves, the author notes that the answers to a question about the fundamental reason they are in sales generally fall into four categories.  Below we see where the responses women and men gave differ.  Men are more likely than women to select "the harder I work the more money I make" and women more likely than men to state that the career choice "just happened." This may jive somewhat with the findings highlighted in my earlier post, that men are more likely to pursue a role with pay based on competition (hopefully, in the case of sales, it's inter-company rather than intra-company).

How Important Money Is To Me

Whether pay explicitly led them to a career in sales or not, the chart below shows - surprise surprise, right? - that the majority of male and female sales pros are motivated by money.  62% of men and 54% of women agreed with the statement “Money is extremely important to me and how I measure my personal success."  Only 14% of men and 15% of women disagreed.  So while there is a small observable difference in "money importance" between the genders, it is less significant than their motivation to get into sales (above) might suggest.

  

The Difference a Mentor Makes

This is the one I really found interesting - the difference that having had a mentor makes to actual sales performance, as measured by previous year's performance against quota.  Women who've had the benefit of mentorship significantly outperformed their no-mentor female peers - a finding that was not nearly as striking for men.

Some thought provoking takeaways for sales recruiting, retention, development, performance management and role definition here - less so (to my thinking) for sales rewards. But still.

What say you?

Ann Bares is the Founder and Editor of Compensation Café,  Author of Compensation Force and Partner at Altura Consulting Group LLC, where she provides compensation consulting and survey administration services to a wide range of client organizations.  She earned her M.B.A. at Northwestern University’s Kellogg School and enjoys hiking, reading and hanging out with family in any spare time. 

Startup Pay is like Guerilla Warfare

It has been proven time and time again that a persistent and committed band of fighters can hold off and even beat the largest and most powerful armies in the world. This is never accomplished by fighting with the same tactics. It works exactly because the tactics and passion for survival are far different than that of the larger and better-funded force.

Wikipedia puts it this way:

“Guerrilla warfare is a form of irregular warfare in which small groups of combatants, such as paramilitary personnel, armed civilians, or irregulars, use military tactics including ambushes, sabotage, raids, petty warfare, hit-and-run tactics, and mobility, to fight a larger and less-mobile traditional military."

Most human resources and compensation professionals are peaceful people, but we are all fighting in the war for talent. It often surprises me how many startups choose to fight that war using the same tools and techniques as their larger combatants. There are, of course, rules that generally must be followed, but they are few and fairly unrestrictive. When you are battling for the existence and success of the company that aligns with your passions and puts food on the table, perhaps you should consider not following the leaders.

More companies should look at the major trends and core market data as examples of what NOT to do. This is the history of startup success. This is the core of rewards elements like 401k, stock options, and great food at work. Each of these things was initially used to provide a competitive advantage for scrappy startups versus large established corporations.

In compensation, we tend to start with market pricing, but it may make more sense to start with establishing the ideal pay mix. Base pay at the 50^th percentile assumes that base pay should play the same role at every company. Short-term incentives that are scaled to match market data ensure that you will be competing against companies with larger budgets using the same tools as they use. That seems counterproductive, and kind of dumb. Granting equity compensation with a 4-year vesting period because it is a “best practice” is kind of like American Revolutionaries choosing to wear bright red costs because the British Army wore them first.

When we start with pay mix, we rearrange how we view our budgets and path to success. For more than 15 years companies have been locked into this idea that startups can only use 20% of fully diluted outstanding shares as their maximum equity pool. This isn’t a rule, it’s a guideline. Smart investors can be educated to understand that giving up a bit more capital now, to win later, makes more sense than hoarding shares and losing.

While cash is limited at startups, annual incentives can still exist and are compelling. I have helped many companies roll out annual programs where the delivery mechanism is something other than cash.

Food was a great differentiator when everyone worked together in a cool shared office location. In a remote, or work from home, environment, we need to imaginatively consider other options. Discounted delivery? Schwann’s truck deliveries? A StarTrek-like “replicator” in every home? Think about what the big companies wouldn’t do and then try and do it!

The goal of every startup is to eventually grow out of being a startup. You don’t need to be Amazon, Google, Apple, or Netflix today, you need to be who they were when they too fought using unexpected and often “unfair” tactics to support their growth. It is a war for talent and your ability to win starts with your ability to fight differently.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

The Baby is Ugly – Compensation Edition

I love kids. My 7-year-old son claims I like talking to kids more than I like talking to parents (often he is correct.) I am one of those people who coo about the cuteness of every baby. Sometimes I may be stretching the truth. Compensation may be your baby, but sometimes you need to be a bit more honest. Sometimes your compensation baby is ugly.

This post was inspired by a Head of Total Rewards at a client of mine. The company is going through a bumpy patch and there aren’t any great solutions that will make everyone whole or happy. Most of their value has evaporated for the time being. Things they have planned for and communicated at the corporate level have fallen through. Their industry is going through a (temporary) downturn. She said on a recent call, “admit it, Dan, the baby is ugly”.

Admitting the truth about a difficult situation is often the first step to finding a resolution. It isn’t fun. It isn’t enjoyable. It isn’t everything we learn about work-life balance, attracting the best people, motivating them to perform, providing them with rewards to stay for a long time. Sometimes it's necessary to admit the facts so you can patch up the ship well enough to try again another day.

But there is always something redeeming in nearly every situation. Perhaps your expertise and efforts can make a hard landing softer. Maybe there is a way to save and reward the people who will be critical to correcting the course when the storm passes. Maybe your prior hard work of ensuring job titles were tight and pay levels were market competitive will help those who must be let go find a better position somewhere else.

So, what should you do when your baby is ugly? First, remember that this is your job, not your baby. Admitting the truth about the situation is critical to finding solutions. Next, approach your solutions from the perspective of you cannot fix everything in a truly terrible situation, but that doesn’t mean there aren’t any paths to success. Lastly, you need to communicate calmly and matter-of-factly to everyone impacted as soon as the opportunity arises.

Start with a triage assessment. Identify who and what can be saved, which things will survive without your help, and which things must be abandoned. An example can be found here. Abandon the unsavable quickly, but with respect for the people impacted. Explain to those who will absolutely survive that you will be getting back to them soon. Focus your efforts on the things where your efforts are required for future success.

With your priorities set, put your efforts into achievable solutions, not “great” solutions. Most of these won’t be found in your WorldatWork reference materials. Don’t hesitate to contact friends or even external experts. Most will provide ideas without complaint. Focus on quick execution, it probably won’t be pretty, but make sure it’s effective.

Then stand up in front of the crowd and tell them the truth. Be direct. Be clear. Be confident about the future (even when you may be unsure or scared.) In difficult times people need a leader who can shine a light on the facts while also pointing out that the darkness will pass. This is often the hardest part. Remember that you have a plan for tomorrow and that the plan depends on others being able to execute.

Sometimes the baby is ugly. When it’s your friend’s child, keep your thoughts to yourself and say nice things. When it’s your compensation programs, be honest, fix what you can, and focus on navigating the storm.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

Sales Incentives: Farmer, Hunter, Rancher

Everyone who has ever worked on sales incentives has heard people refer to roles as “farmers” and “hunters”. These two terms are used to simplify the focus of sales roles and the type of pay they receive. Unfortunately, this clouds the roles of salespeople in many of today’s businesses. Professionals who have the responsibility of bringing in new revenue are more complex than we often recognize. In truth, many are more like ranchers than they are farmers or hunters.

Farmers grow things. They keep the ground healthy. They plant seeds and tend to their crops. They are patient, persistent, and resilient. They know that time, luck, and execution will lead to an eventual harvest. They live with their product and eventually take it to market to be sold. No matter how much they want to act, they can only sell their goods when the product is fully ripe and ready.

Hunters don’t live with their product they go after it. They work with an urgency created by the movement of what they are hunting, and the conditions that allow for the hunt to exist at all. They also know that luck, execution, and a limited amount of patience are required for success. Where farmers think of patience in terms of seasons, hunters think of patience in terms of days or even hours. Once they have captured their target, they must quickly get back into the field to find more prey.

Both definitions are still valid for many sales roles. Some positions require long, slow relationship building followed by years of productivity. Other roles require identifying, pitching, and closing new clients at a very rapid pace. But we are increasingly finding roles that combine both the methodical building cadence of a Farmer with the opportunistic market-driven closing style of a Hunter. We call these people Ranchers.

Ranchers are a unique breed of people. They are solitary but have strong interactive communities. They are independent, yet are comfortable asking for, and receiving, help during the busiest time of the year. They grow their own crops to ensure they have food for their herds. They spend years improving their bloodlines by patiently breeding in traits they want and avoiding those they don’t. But they also recognize and jump on opportunities.

If the market is for their product is strong, they will sell things even if they may have additional time to grow. If a better horse or bull becomes available unexpectedly, they will take a chance and act quickly, and figure out what to do with their current animal later. They also know that they must “bet the ranch” every year if they wish to have the ranch the following year.

The Rancher is the prototype for many modern salespeople. Some nurture their sales for years before the close. Others nurture their sales for years after the close. Both approaches are designed to allow them to act on opportunity when it arises, instead of when the season commands. The best salespeople are willing and able to execute on the long-term development of relationships while also executing on the quick “big close.”

Incentive plans for Ranchers need to have the defined performance goals and cadence of a traditional short-term incentive plan with the immediacy and high potential of a commission program. This combination is a new challenge for many compensation professionals and requires a more active partnership between sales leadership and the compensation department. If you begin today, you will have enough time to do something great for the start of next year!

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

Sales Compensation: Chicken or Egg?

I am often asked to “fix” sales compensation programs. The thought is that a change of quota, leverage or commission percentage will demonstrably improve sales efficacy and revenue. Unfortunately, in most cases, it isn’t that simple. Providing a shinier sales incentive program without addressing sales roles, training, and tools accomplishes very little. To make real changes in your sales team you need to determine what should come first, the chicken or the egg.

To be clear, the egg came first (dinosaurs laid eggs before birds existed). The egg in this case would normally be the structure of the sales team and its approach to closing business. The chicken should be your sale incentive plan. In many young companies, the opposite is true. Sales at early-stage companies are often the result of an organic or even accidental process. This results in success for a small sales team with limited sales volume, but it seldom sustains the growth needed for ultimate success.

When the approach to sales incentives precedes the establishment of a defined sales structure and process, improving sales incentives can be driven by guesses. A compensation professional likes to mix just a little bit of science with their art, and sales incentives without a structure are basically 100% art. So, what do you do when you are asked to help fix these programs?

First, ask to see the organization structure. Take time to learn exactly what each role does, when they do it, and when they interact with or move the sale to another person or department. Ask a million questions and try not to provide too many early opinions. It’s hard to identify the good and bad before the full picture is known.

Next, determine what the job descriptions would be for each job if they had not already been written (and they often aren’t). Don’t start with the title or JD and find matching data. Start with defining how each role differs (they often don’t) and determine if those differences should receive differentiated compensation (they often shouldn’t).

Then, with an understanding of each role and an opinion on where incentives should be similar and different, go back to your sales team and ask more questions. Ask as many “why not” questions as possible. Salespeople are inherent problem solvers. Challenge them to help you determine the right structure, the right incentive focus points, and, ultimately, the right solution. Salespeople also like to be “closed.” They appreciate a strong sales process more than the rest of us, so get them to make your arguments for you.

Finally, with an agreement on how each role should work, you can provide real guidance. You can explain what types and levels of incentives can help keep people focused on their critical metrics. You can use your compensation expertise and math skills to show how your proposed approach can be both lucrative to the individuals and essentially free for the company (great salespeople pay their own wages). Blather on about how you have taken into account TAM, SAM, and SOM in your modeling. Then show them the numbers and close the deal.

There is a ton of technical knowledge required to be great at sales compensation. Most of that technical expertise is important for large sales organizations. For smaller groups, the technical piece is less critical. Focus on what people do and why they do it. Keep the programs as simple as possible and be confident that your best salespeople will always figure out how to work the incentive plan to their favor. Being a strategic sales incentive partner in a small or mid-sized company is mostly about asking the hard questions and letting the sales team take the lead on the solution.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

Lego and the Art of Fixing Sales Compensation

Many of you may be familiar with the renowned Behavioral Economist and author, Daniel Ariely. He studies and discusses how work is about much more than just pay. One of his most famous discussions covers a study he did that asked people to build Lego sets. The basic finding was people didn’t like to see work they had performed taken apart. I love Lego (perhaps because I have a young child) and I think they translate well into many concepts of pay and organization design. In this article, I cover how Lego can be used to help you understand why it’s so hard to fix your sales incentives.

Lego are amazing. They often come in kits that provide instructions on exactly how to build the picture on the box. My son has built most of the world’s city skylines. I can’t get him to take one apart for anything. They also come in random sets of hundreds that require only your imagination and time. The trick is that after you have built something cool with a random set it can be as psychologically difficult to break apart as a completed designed set.

Given enough Lego and you can build just about anything. Sales compensation is similarly simple, flexible, and potentially complex. Do you focus people on volume, quality of sales, profitability, growth, long-term builds? This list is nearly endless. How you motivate people to stay focused is similarly flexible. Do you use commissions, SPIFFs, spot bonuses, long-term incentives, quarterly goals, annual goals, team metrics, or individual achievement? Do you focus on granularity or stay tuned with the big picture? Any program requires buy-in from so many people and groups. The final result is something that people depend on to pay their own bills and keep their company afloat. Making small changes is simple, but real change is hard.

Changing a percentage, or one metric, or adjusting a quota or sales region are done all the time. But these kinds of changes do not keep a sales incentive plan current with a company that has evolved and grown in any significant way. Markets change, products change, consumer desires change, trends blow like the winds. The tower you built with your Lego years ago may no longer be able to support your objectives. This is your starting point.

It takes a special kind of buy-in and commitment to get people on board with tearing apart the old Lego tower and starting over with a pile of bricks. This is often the only path to success, but it takes a long time and requires you to keep an old plan running less than optimally while your best people work on something better. The task is not for the meek. It is for bold and confident professionals who want to see their company achieve its true potential.

I have found that explaining things to stakeholders in these types of terms can often help gain acceptance and participation from those who can make the right decisions and champion the final program. Tearing apart your beautiful Lego building and starting staring with something new can be painful, but the result is something that uses your prior experience and boundless imagination to create something even better.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.

Pushing the Right Button

Not every employee can sell products or services to potential customers.   The selling process requires an employee to possess a particular set of interactive and persuasion skills, as well as a compatible personality profile (garrulous, self-confident, unafraid of rejection, etc.).   While some employees enjoy the challenge, most want no part of it and only a minority are neutral about the idea.  For those tasked with a selling job it’s typically a reflection of individual personality that would generate success or struggle. 

For compensation practitioners having the right person involved in the selling process can be more important than the compensation program itself, because dangling potential rewards in the face of the wrong person can be a waste of money and represents lost business opportunity.

It's All About Motivation

Success in the selling process depends upon the right motivating elements aimed at the right employee personality.  To do this correctly within a sales compensation program requires the design to take that into account, to focus financial rewards toward whatever engages, whatever motivates the employee to perform in the manner the organization wishes.

Costly mistakes can be made when an organization assumes that all employees will react in the same fashion to the same stimulus.

Have you considered what motivates your sales employees?  Chances are that not everyone would have the same answer.

• Money: Everyone’s first response is that all you have to do is offer the opportunity for a cash bonus and the employees are off and running.  But in chasing the almighty dollar, employees could also drive your company in the wrong direction - even off a cliff - because they may take the path of least resistance (difficulty) and greatest financial reward.  If those activities fail to align with what the company needs to assure business success, money is not only wasted but used to reward behavior that could be detrimental to the company.

Do you really want to reward the sale of a money-losing or low margin product?

• Mission: Especially prevalent with not-for-profit organizations, many employees have a “fire in the belly” belief in what the organization espouses, be it products, services or awareness.  This internal value system often provides motivation enough to ensure concerted efforts.  In such a scenario, money is deemed less important (though not dismissed) as a motivator.  Employees are already motivated by the worthiness of the organization's mission.

Helping others or helping a cause can be reward enough for some employees.

• Brand identification: If you identify with the organization’s offerings and have a belief in what you are selling, you're already halfway to becoming an effective sales representative.  For these employees the ingrained belief in what they sell is already present; they just need a bit of training.

Employees are proud to be associated with a particular product or service.  They're always wearing the logo shirt and are the organization's biggest fans.

• Self-motivation: Here the employee possesses an internal reserve of self worth that helps to make excellence its own reward.  It's a state in which success in one’s endeavors is self-fulfilling.  The reward system for these employees is often a nice addition but isn’t necessarily the prime motivating factor.

A certain level of performance would be forthcoming, no matter what financial rewards are offered.

• Challenge: The mindset here is the joy of climbing the hill, especially if there’s a pot of gold at the peak.  Similar to self-motivation, some personality profiles relish a good challenge, and if you provide a reward for goal attainment, so much the better.

For such employees, the game is always afoot.  They enjoy breaking down barriers, solving problems and reaching for the brass ring.

• Competition: The fierce desire to be better than others; where winning (which means that others lose) is critically important.  Note: such employees might not be effective team players.

Sometimes this motivational factor is less about achieving company goals than simply doing better than other employees.  Like a loose cannon, these players may have their own definition of winning, which may not be synonymous with yours.

The takeaway point here is to understand what motivates your employees and then to place your rewards in front of them in a fashion that leads and directs their behavior.

Because if you design your incentive program with the wrong assumptions about what engages your workforce, you'll risk missing your targets, misspending your financial assets and perhaps not even achieving the required level of success - regardless of the money paid out in rewards.

Chuck Csizmar CCP is the 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 clowder of cats.

Creative Commons image "5", by sideshowbarker

Temporal Discount or Pay Avoidance?

The Wimpy Grift: “I’ll gladly pay you Tuesday for a Hamburger today.”

In the classic Popeye cartoon series, Wimpy played Popeye’s pleasant and dedicated friend who spoke quietly and ate a big meal. He was often heard asking for others to spot him the cash to buy a hamburger. There is no record of anyone ever receiving repayment.

Temporal discount is a critical but often unknown component of every incentive plan. The term from the world of behavioral economics refers to an often subconscious discount based on the time you must wait or risk you must face before your receive something. The longer the wait, the deeper the discount. The bigger the risk of non-receipt, the deeper the discount.

A well-designed incentive plan must account for this in several ways. There must be a way to more than make up for the time and risk, for example, a leveraged upside. There must be an understanding of why the time and risk exist. This is achieved through strong communications. Most importantly, there must be a clear understanding that the value will actually be delivered if the time period is exceeded, and risk avoided. This is where the Wimpy Grift comes in.

The grift can come in many flavors. The most common is the promise of an incentive plan or pay increase that never seems to occur. We are all busy. Every business has a list of very high priorities that can get in the way of fulfilling a compensation promise. Unfortunately, the delay increases the temporal discount. At some point, the future value of the promise has no value at all. Even the best incentive plan cannot fix this issue once it is a reality.

Another common example is an unachievable goal. In our zeal to create incentive plans that ensure performance, we can design plans where the “target” goal is never met. After a few occurrences of this, plan participants just begin assuming that they will never receive the program's full value. This leaves you with the tasking of raising the potential payouts to offset the discount or losing staff members to better-equipped competitors.

In both of the very common examples above, the fix is easier and less costly than the problem. You must factor in the impact of temporal discount when measuring the impact of an incentive plan. This is very little difference between a plan where the goals are unattainable and simply not having a plan at all. They are both insincere or empty promises and have zero value to the participant.

Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. Dan is also a leading expert on incentive plans and equity compensation issues. He has written several industry resources including a resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, “The Decision Makers Guide to Equity Compensation”, “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or follow him on Twitter at @DanFutureSense.