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Alliance Compensation News & Events

Alliance Compensation News & Events

Best Laid (Delayed?) Plans

Best Laid (Delayed?) Plans

You are a well-respected, knowledgeable, and smart compensation/rewards professional, with a lot of success behind you.  You’ve just put together one of the best pieces of work that is sure to be a “game-changer” (to use an over-worked phrase) for your company.  You have the time booked with the CEO.  And you walk out rejected and dejected.

I’ve worked for a lot of great companies over my career – Portland, Phoenix, Bay Area — but not always for people that had the greatest insight into rewards and compensation.  Sometimes that’s the HR leader, but more frequently it’s the CEO, or as I affectionately call him/her, the Chief Compensation Officer (CCO).  That means instead of meaningful answers on key questions and great ideas, you get responses like:

  • Gobble-de-gook:            “We need incentive programs that will enable us to save on expenses, not pay outsiders.” (Huh?)
  • Ostrich:                            “I don’t hear a whole lot of negative feedback, things must be working.”
  • Black or White:               “Turnover isn’t a problem so compensation must be OK.”
  • 4th and long (punt):        “The Executive Committee needs to decide on our funding priorities.”

Or here’s where you really know things are going sideways: “This would look better it the line was green instead of yellow.” (Play sound of your hair ripping out.)

Thus the subject of this blog post.  I’ve just experienced something like that again, but this time indirectly as a potential client in Seattle was unable to move ahead because the CEO didn’t want to make the changes to the compensation plan… that he had designed… and gave him the ability to change all the decisions made by managers…

So Now What?

As an external consultant, you can say “OK then,” and move on to the next opportunity.  But what if you are working for the CCO?  There are still things you can do that continue to advance great ideas and strategies.  Here are some specific steps you can still take that while not optimal for your original compensation plans could at least help to prepare for a time when you get the go-ahead to move forward.

  1. For incentive and equity plans, review your plan documents.  Look at those specific areas where you’ve observed some friction or perhaps where errors exist.  For example, does your commission plan describe credit splits as 50/50 while Sales Operations is paying 100/100?  Do you have new pay grades eligible for the company bonus plan, but haven’t updated the appendix where eligible grades are listed?  Go after those areas that may only affect a small portion of your population but could cause a big headache when challenged.  Use data to prove the need – best reply to a Black or White or an Ostrich.
  2. Spend some quality time with finance.  It’s fine to try to engage with finance on the fly during a design project, but so much easier to have already established roles and responsibilities, and in some cases, educating on design principles and such when there’s no pressure or deadlines involved.  And when you have a finance ally with you next time with the CCO it could be a different result.
  3. Invest some time in looking at all your labor cost data, not just the incentive or bonus element.  Most CFO’s are willing to discuss if the company pays out cash in fixed or variable form, but they really care about the total going out the door.  When you look at things like employee distributions in grades, management spans and the like, you start to uncover elements of total labor costs that may help fund future variable pay programs for the broader workforce or add a penny or two to EPS.  Taking the CCO additional business metrics they may never have seen before could jump start a decision.
  4. Poke at your administrative processes and payment mechanism.  If you’re lucky you have this well in hand, but most of us have opportunity here either to re-ask why we do things a certain way, whether we are compliant with our own pay policies, and if plan payouts are being calculated and paid correctly.  For example, if your sales incentive plan is supposed to pay incentives against a year-to-date quota, is that really happening, or is there a spreadsheet error somewhere paying every month independently? Nothing derails a CCO conversation faster than sending you to the woodshed for poor execution of a current program.
  5. Test different approaches and ideas.  Sometimes the best socialization approach with a CCO is a slow drip of the concepts rather than quick change.  This works especially well when you can run your idea in parallel to the current plan and show any differences.  One of the best approaches to slow decision makers in my experience.
  6. To take #5 a little further, ask to run a pilot.  That may not be something you are used to doing, but why not gather the experience in real time before taking something live for everyone?  It may even create a little “buzz” in the rest of the work force.  This happened to me once with a large hi-tech company in Santa Clara. Executive support existed for a change in our employee recognition program globally, but IT and HR leaders couldn’t figure out how to support it.  A brave HR leader of a large organization volunteered to run a pilot in part because she saw the opportunity to make significant inroads for employee engagement and greater simplification of existing programs.  It was a tremendous success and we had other organizations clamoring to get in, creating the “pull” needed to overcome the barriers.  And it proved to the CCO that it was not just some hair-brained idea.

Always Remember…

I have an axiom I’ve followed for many years in compensation and the business world in general.  You may have seen this written in different ways, but it basically goes like this:

“There is nothing more difficult to take in hand, more perilous to conduct, than to take the lead in the introduction of things, because the innovation has for enemies all those who have done well under the old conditions and lukewarm defenders in those who may do well under the new.”

Remember, it probably isn’t personal – so once you get past the surprise, find a productive way to move ahead.

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Jim Harvey is a Managing Partner with Alliance Compensation LLC (www.alliancecompensation.com) , a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 35 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR.

You are a well-respected, knowledgeable, and smart compensation/rewards professional, with a lot of success behind you.  You’ve just put together one of the best pieces of work that is sure to be a “game-changer” (to use an over-worked phrase) for your company.  You have the time booked with the CEO.  And you walk out rejected […]

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4 Important Reasons to Turn Down a Counteroffer

4 Important Reasons to Turn Down a Counteroffer

About 20 years ago, I decided to leave my job since I felt unappreciated and underpaid. After applying at various companies and going through multiple interviews, I received a job offer that included a significant salary increase.  I was on cloud nine! Now, the hard part – telling my boss I was leaving. That night, I carefully drafted my resignation letter as I didn’t want to burn any bridges. The next morning, I walked into my bosses’ office and tendered my resignation. What happened next came as a complete surprise – a counteroffer.

WOW! I was ecstatic. I had two companies competing for my skills and experience, and both offered a significant salary increase. That night, I went home and celebrated over a glass of wine with my husband. However, the next day, I started to feel bitter. Why did it take a job offer from another firm for my current company to offer me a market competitive pay package? Ultimately, I chose to leave my current company and accepted the position with the new firm.

As a Compensation Leader, I’ve encountered multiple instances where managers scramble to pull together counteroffers in an attempt to retain their key employees. Managers typically ask employees “What are they offering you?”, and then the auction process begins.

4 Reasons to Turn Down a Counteroffer 

  1. Ask yourself “Why is it that I’m now getting a raise?” It’s not that you just became more valuable to your employer. It’s because your manager wants to avoid the work disruption that would occur if you left. Raises should be given based on your individual contributions and performance and should occur proactively by management, not reactively due to a resignation letter.
  2. You may later find your relationship with your employer has fundamentally changed. Your company might be trying to buy time to search for a replacement, figuring that it’s only a matter of time until you start looking again. You might accept the counteroffer only to find yourself out of a job soon thereafter.
  3. The reasons that you started job hunting in the first place may still exist. Many people begin the job search due to boredom with the work, dislike of their manager, or unrealistic deadlines. Increasing one’s salary doesn’t address the fundamental issues that may still exist.
  4. The new employer may never consider you a viable candidate in the future. After spending countless hours going through their hiring process, they may be wary of considering you for a position down the road.

In a prior blog, I addressed the Top 5 Employee Retention Strategies in 2021. Managers should shift from “reactive retention” to “proactive engagement” in order to avoid counteroffer situations.


Nancy Ellington is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. She has over 30 years of experience in corporate leadership roles and consulting, and lives with her husband and two kids in Redmond, WA.

As a Compensation Leader, I’ve encountered multiple instances where managers scramble to pull together counteroffers in an attempt to retain their key employees. Managers typically ask employees “What are they offering you?”, and then the auction process begins.

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Increase Your Impact, When to Hire an Expert

Increase Your Impact, When to Hire an Expert

If you are like me, you like to do things yourself.  I generally know how long things will take and I like the satisfaction of saying “I did it”.  But there are times when I pause and ask myself does it make sense for me to do this.

For me personally, I really dislike plumbing and I’m not good at it. No matter what I do I seem to struggle to squeeze into those little spaces and feel like I am going to break my arm. And, there always seems to be a leak when I’m done. So, even though I don’t like to spend the money on plumbing, for me an expert is always the way to go!

In a professional setting, there are a number of reasons where it makes sense to go with an expert including:

  1. You do not have someone on your team with the knowledge or experience,
  2. When you are dealing with issues that impact a very sensitive employee group or a lot of employees where it is critical to get it right,
  3. When you need or have to improve credibility with stakeholders including management or employees,
  4. There are special laws that need to be considered and you just don’t deal with them on a regular basis, and of course
  5. Your team is already at or beyond capacity and you just could use the extra hands.

When thinking about executive compensation, it makes sense to get help from an expert when hiring executive officers.  There are a lot of factors to consider in this situation including internal equity, employee perceptions for publicly disclosed compensation information, the Compensation Committee, the Board of Directors, and how your investors and shareholder advisory groups will view the situation.  Making a mistake here can create headaches for you when it comes time to seek shareholder approval of your executive compensation practices or proposals.

If and when you do decide to hire an expert, remember, their help can take many forms.

Complete Creation

In this situation the experts will create the design, or fine tune yours, and then create everything that supports rolling out the design including presentations, communications, and plan documents. This approach is great when you do not have the expertise OR bandwidth for the project.

Co-Author Work In Partnership

This is a great idea when you want to be involved in the work while getting expert help. Your company can learn a lot using this approach.  Remember, this also creates a situation where you are partners and have an equal stake in the results. I was fortunate to partner and co-present with Jeremy Erickson of Pillsbury Winthrop Shaw Pittman LLP and Jon Burg of Infinite Equity on the impact of the CEO Pay Ratio requirements at a Global Equity Organization conference. Partnering with Jeremy and Jon provided the opportunity to gain expertise and directly apply it in a business setting.

Plan/Content Review

External viewpoints can be very helpful when making sure your proposed designs, plans, programs and/or content are designed and communicated well. External advisors typically look at things differently since they have exposure to multiple companies and designs. You will most likely appreciate their insights and suggested improvements. And, it provides you the ability to say an expert agrees with your approach.

Doing projects yourself is very satisfying; however, there are times when hiring an expert is the right choice especially when you use a model that works well for you and your company.  Each project and situation is different; trust your judgement on when to “jump in the pool” and hire someone.  For me, hiring a plumber is always the right thing to do!

To read other blogs, go here: https://www.alliancecompensation.com/blog/

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/


David Adent is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 30 years of experience in corporate and executive compensation roles, and lives with his wife in Spokane, WA.

Doing projects yourself is very satisfying; however, there are times when hiring an expert is the right choice especially when you use a model that works well for you and your company.

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Follow The Leader

Follow The Leader

When I first thought about this idea — that a lot of what we do in the compensation world is to follow the leader — it was the children’s game that came to mind.  Remember – if I’m the leader and I skip in a circle, you do to; if I put my right-hand pinkie finger in my ear, you do too.  Sort of a cousin of Simon Says.

Then my mind went to what really happens when we play follow the leader in compensation.  Maybe some or all of this has been on your watch:

  • We let market data dictate what “we believe” jobs are worth and how employees are paid
  • We design incentives based on how our competitors do it, or how the VP did it at her last company
  • We enable management’s somewhat mistaken belief that benchmarking is the only valid approach to program design

When we play Follow the Leader, we handicap our creativity to align our reward programs and systems to our unique business philosophy, strategy, objectives and values.

Give Up On Benchmarking?

It’s not my intention to totally scrap the idea that we can learn from others.  Some of the best learnings I’ve had in my career have been from people that have faced challenges and found unique solutions that worked.  For years I kept paper copies of presentations I had attended at conferences, industry meetings, consultant presentations, etc.  And I did go back over them to pull out ideas, but I didn’t take that material and just paste my current company logo in the upper left corner.  It did help though to add elements to programs that would fit the needs of the problem I was trying to solve.  For example, should a bonus program have a payout threshold?  Should a vesting component be used?  These are ways to put real value into company bonus, sales incentive and executive compensation plan designs.

Market Pricing

There are other aspects of benchmarking that I am solidly behind (especially when it reinforces my own beliefs!).  Of course, many pay programs are benchmarked to a local market – Seattle, Los Angeles, Phoenix, you name the location and that’s probably right when it comes to certain jobs and levels of pay, for example non-exempt work.  And for example, I see pay practice surveys that show the quantitative metrics participants use in their broad-based bonus plans and the prevalence of that.  (I’d bet right now that not many readers of this know what EVA is, but I worked in a company once where it was the primary metric in the employee bonus plan).  I could easily show how it simply wasn’t appropriate for the level of employee that needed to understand it, but it took an executive departure before we could wrestle that one down.

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(By the way, bonus points if you know the answer to this related quiz question.  What are the two most common quantitative metrics that companies use for their bonus programs?)

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Now with COVID this last year, we’ve all heard (herd?) of Herd Immunity.  One of the more common applications of the compensation ‘herd mentality’ is on market pricing of jobs.  If you are an old-timer like me, you probably know that at one time, job evaluation systems like point factor, classification or factor comparison systems were more prevalent than market pricing.  And if you haven’t taken C2 (the job evaluation class) from WorldatWork, you may never have heard of those.  But much more so than market pricing, they enabled companies to determine how to pay their employees when they selected what was important to them rather than letting the market do it for them.

I still tell my clients that “the market is… interesting… but don’t let it tell you what to do.”  What I mean by that is this: Follow the Leader isn’t always your best choice.  And as a trusted advisor in your company, take heed that if you are going to play that game then you know what you’ve signed up for.

——

Quiz Answer: Revenue and Profitability

——Jim Harvey is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 35 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR.

To read other blogs, go here: https://www.alliancecompensation.com/blog/

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/

When I first thought about this idea — that a lot of what we do in the compensation world is to follow the leader — it was the children’s game that came to mind.  Remember – if I’m the leader and I skip in a circle, you do to; if I put my right-hand pinkie […]

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2021 Compensation & Benefit Limits

2021 Compensation & Benefit Limits

As we bring in the new year, we should keep in mind a few changes with respect to the 2021 Compensation and Benefit limits.

401(k) Plan Limits

Employee 401(k) contributions for plan year 2021 will once again top off at $19,500 with an additional $6,500 “catch-up” contribution allowed for those turning age 50 or older. But maximum contributions from all sources (employer and employee combined) will rise by $1,000.

For employee contributions to 401(k)-type plans, the news is “no changes” for 2021, whereas last year saw a $500 jump in the overall employee contribution limit for 2020 plus a $500 rise in the catch-up limit. The annual defined contribution limit from all sources increases from $57,000 to $58,000 (plus the $6,000 catch-up if age 50 or older), or 100 percent of an employee’s compensation.

The annual ceiling on employee compensation that can be used to calculate employee deferral and employer matching contributions also is increasing to $290,000 from $285,000.

The limit used to define a highly compensated employee for nondiscrimination testing remains at $130,000, as well as the dollar limit for defining key employees in a top-heavy plan remains at $185,000.

Health Savings Account and High-Deductible Health Plan Limits

For 2021, the IRS announced an increase in health savings account (HSA) contribution limits. An individual with coverage under a qualifying high-deductible health plan (deductible not less than $1,400) can contribute up to $3,600 — up $50 from 2020 — for the year to their HSA. The maximum out-of-pocket has been capped at $7,000.

An individual with family coverage under a qualifying high-deductible health plan (deductible not less than $2,800) can contribute up to $7,200 — up $100 from 2020 — for the year. The maximum out-of-pocket has been capped at $14,000.

The $1,000 catch up contribution available to accountholders aged 55 and over is not tied to a cost of living adjustment and thus, remains at $1,000.

Social Security & Medicare Rates & Limits

President-elect Joe Biden, according to the tax plan he released before the election, may enact of number of policies that would raise taxes on individuals with income above $400,000, including raising individual income, capital gains, and payroll taxes. The details of Biden’s tax plan are still being finalized.

For earnings in 2021, the maximum taxable earnings limit is increasing to $142,800 from $137,700. 

The OASDI tax rate for wages paid in 2021 is set by statute at 6.2 percent for employees and employers, each. Thus, an individual with wages equal to or larger than $142,800 would contribute $8,853.60 to the OASDI program in 2021, and his or her employer would contribute the same amount. The OASDI tax rate for self-employment income in 2021 is 12.4 percent.

For Medicare’s Hospital Insurance (HI) program, the tax rates are 1.45 percent for employees and employers, each, and 2.90 percent for self-employed persons.

For a summary of these changes, please refer to the table below.

Nancy Ellington is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. She has over 30 years of experience in corporate leadership roles and consulting, and lives with her husband and two kids in Redmond, WA.

As we bring in the new year, we should keep in mind a few changes with respect to the 2021 Compensation and Benefit limits. 401(k) Plan Limits Employee 401(k) contributions for plan year 2021 will once again top off at $19,500 with an additional $6,500 “catch-up” contribution allowed for those turning age 50 or older. […]

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Avoiding the Holiday Gift Trap

Avoiding the Holiday Gift Trap

We have all heard stories where a friend or family member received a holiday ham or turkey as a company holiday gift. I don’t know about you but when I first heard about these gifts I was surprised.  These types of company holiday gifts or gratuities will frequently have mixed success but hopefully they are appreciated for their intended gesture.

I was curious what types of holiday gifts are popular in 2020 and according to Connie Chen of Business Insider, these are her top 5 corporate holiday gifts:

  1. A low-maintenance plant to brighten up a desk
  2. A tumbler that keeps nearly any drink at its ideal temperature
  3. A candle that’s particularly giftable
  4. A reusable bag fit for errands
  5. A journal that’s meant for developing ideas.

If you are thinking about what holiday gift or gratuity to provide your employees or co-workers, here are some things you should consider:

  • How to make the recipient feel valued and appreciated and they were not an “after-thought”.  If your gift is being sent from Seattle to Denver and you send it on December 24, chances are it might not have the same effect as if it was received a week earlier.
  • Your relationship with the recipient. Workplace relationships can range from acquaintances to very good friends and even relatives. Make sure your gift shows them they are valued but do not get too personal or you might make them or others in the office uncomfortable.  For example, perfume or cologne is probably not a good idea.
  • What are their interests? It is best to give something they will appreciate, use and remember. A co-worker once gave me a 24-inch-tall Christmas Minion plush toy and I LOVE IT.  Each year it is displayed with our Christmas decorations and it always gets a lot of discussion with guests.
  • How to provide the gift not expecting anything in return. Remember, a gift is not an incentive.
  • How to recognize the recipient knowing not everyone celebrates the holidays in the same way or at all.  Staying away from specific themes can help you avoid this pitfall.

When considering gifts to current or potential customers, be aware of:

  • Company policies. Some companies have very strict policies and you will want to make sure you follow them.
  • Cultural norms.  If you work in a global company it is important to understand the cultural aspects of gift giving and receiving to avoid problems. 
  • Gift Value.  It is best to provide something with a nominal value so you do not inadvertently create pressure to buy your goods/services or become a client. Of course, you also do not want the gift to be mis-interpreted as a bribe.  One very large company I know in Santa Clara even calls this out in their sales incentive plan policies.

Lastly, do not forget to consider the potential tax implications of giving a holiday gift.  Depending on the situation, the Internal Revenue Service (IRS) might consider the value of the gift as taxable income and therefore taxes have to be paid by the company and possibly the employee.  If you are personally providing a gift to an employee(s) and the company is not paying for it, then you probably do not have anything to worry about. However, if the company is paying for and providing a gift, you need to think about it. If you give a gift card with more than a de minimis value then the IRS might consider it income and it needs to be recorded as such. Being conservative might be the best action.

Giving holiday gifts can be a great experience that has a positive effect on the relationship with the recipients.  If done well, it can result in deeper relationships which could turn into lasting friendships. If you choose to provide gifts, try to: have fun with it, be creative, and provide something you believe the recipient will enjoy and value.

To read other blogs, go here: https://www.alliancecompensation.com/blog/

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/

_____________________________________________________________________________________________________________________

David Adent is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 30 years of experience in corporate and executive compensation roles, and lives with his wife in Spokane, WA.

We have all heard stories where a friend or family member received a holiday ham or turkey as a company holiday gift. I don’t know about you but when I first heard about these gifts I was surprised.  These types of company holiday gifts or gratuities will frequently have mixed success but hopefully they are […]

Read More
 

Top 5 Employee Retention Strategies in 2021

Top 5 Employee Retention Strategies in 2021

Employee retention is one of the greatest challenges facing employers today. Companies faced with a high turnover rate lose tribal company knowledge, as well as training time and investment.  They may also have to undergo a costly candidate search. A high employee turnover rate can cost twice an employee’s salary to find and train a replacement.

As a compensation professional, I often received requests from managers to put together a retention package. While throwing money at the problem may solve the immediate retention concern, it does not solve the underlying reason why employees choose to leave a company in the first place. It’s important to take the time to learn the reasons for employee departures.

Top Reasons Employees Leave 

  • Manager. Employees leave managers since they feel unappreciated, have lack of clarity about expectations, and/or do not believe there is a framework within which they can succeed.
  • Lack of Opportunity for Advancement. Advancement doesn’t necessarily mean promotion. Employees want personal and professional growth opportunities.
  • Lack of Work-Life Balance. Workers from Generations X, Y and Z will continue to insist on having more time outside of work to live their lives.
  • Unable to Speak Freely. Employees want to contribute new ideas. If they feel they must bite their tongues or find themselves constantly in trouble, they will find another company where they can express themselves.

After learning the reasons for employee departures at your firm, you’ll be armed with data to help form a comprehensive employee retention strategy.

Top 5 Employee Retention Strategies

  1. Hire the Right People. Invest time upfront to find the right match between candidates and your organization and team. Besides technical knowledge, make sure the candidate fits with and compliments other team members.
  2. Ensure the Compensation & Benefits Package is Market Competitive. While many employees cite career development and other factors higher than pay on importance, a market competitive compensation and benefits package still counts.
  3. Ask Employees What Motivates Them. Employees are motivated by different things. Don’t assume a one-size-fits-all approach will work for the whole team. Ask your employees what gets them excited about their job and what aspirations they may have. Find opportunities where they can get involved in these areas.
  4. Listen. Ask your employees on a regular basis how they’re doing and what suggestions or feedback they may have. Most of all – LISTEN! This is very hard for many managers to do. As the old saying goes: “two heads are better than one.”
  5. Empower Employees to do their Best. Provide the leadership, resources, and training for them to realize their potential.

It’s time companies’ shift from “reactive retention” to “proactive engagement”. It’s much easier – and less expensive — to retain employees who are engaged and committed to your company’s success.

Nancy Ellington is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. She has over 30 years of experience in corporate leadership roles and consulting, and lives with her husband and two kids in Redmond, WA.

Employee retention is one of the greatest challenges facing employers today. Companies faced with a high turnover rate lose tribal company knowledge, as well as training time and investment.  They may also have to undergo a costly candidate search. A high employee turnover rate can cost twice an employee’s salary to find and train a […]

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Salary Structures on Auto-Pilot?

Salary Structures on Auto-Pilot?

Does the current American economic and salary climate call for an annual salary structure update or for periodic job classification reviews?  Which is needed most?  It’s not like everyone has to scramble to pay more money to attract new talent or keep the majority of your best performing employees.  The bigger problem may be keeping track of what’s happening with the outlier occupations that stand out as either red-hot or ice-cold.  In the same way that sticking your head in the freezer and your feet in the oven might produce an average body temperature, ignoring the effects of economic change and extremes in market rates can similarly create great discomfort while also wasting both money and energy.  

Right now, not much is happening that requires dramatic salary structure changes.  The most important element of salary structures tends to be replacement cost  (the market clearing rate for competent new talent). That usually doesn’t rise as fast as the added value of more experienced incumbents that justifies higher pay for that experience.  There are always marginally acceptable candidates out there willing to accept a job at an entry rate that is the same or almost the same as last year.  After all, is there anywhere in 2020 that the unemployment rate didn’t reach double digits as a result of shutting down businesses?  The fact that your minimum hiring salary may not have jumped much means nothing to someone unemployed and seeking work.  The higher the unemployment rate, the less pressure there is to update salary structures… and the easier it is to advance current employees above the hiring rate.   

That said, it appears there is little reason for most enterprises to automatically ratchet up their salary structures when most competitive pay changes in the outside world are small.  In some cases in recent years, occupational categories have shown negative salary directions, with the current year’s average or median pay dropping to less than last year.  Most employers seem to experience modest overall pay movement rates in the majority of their jobs.  Nevertheless, certain scarce jobs like STEM occupations continue to vastly outstrip all others in their positive rates of change. 

This continued differing movement of job value leads me to ponder whether annual salary structure changes should be replaced by periodic job reclassification activities.  Why bump your total structure 3% when that figure is way too low for many important jobs and unnecessarily high for less critical occupations?  Re-configuring grade-range spreads and reclassifying jobs into the proper categories for current economic realities might be much more effective.  Shaking up the salary classification assignments could restore your program into a better model for what is needed.  Anything that permits more accurate pay targeting while correcting improper peer value alignments sounds like an option superior to an arbitrary broad-brush approach.  That said, there is still the topic of pay equity in many states that cannot be ignored, but market competitiveness is here to stay. 

Are you still grouping jobs according to an extremely outmoded approach that ignores vital modern competitive realities?  Are you following an ancient historical classification scheme that distorts your internal peer equity relationships?  Moving a gravely troubled occupational classification into more appropriate salary ranges might be the solution.  It certainly would be less problematic than misallocating a lot of money to most jobs in a misguided attempt to fix small issues with a few jobs.  We in the compensation profession have a terrible bias towards perpetuating historical legacy approaches just because they are traditional rather than starting fresh with a blank piece of paper to shape something that really works today.   

Think about it before you press Auto-Pilot again for 2021. 

Does the current American economic and salary climate call for an annual salary structure update or for periodic job classification reviews?  Which is needed most?  It’s not like everyone has to scramble to pay more money to attract new talent or keep the majority of your best performing employees.  The bigger problem may be keeping track of what’s happening with the outlier occupations […]

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Sales Compensation Plan Renewal

Sales Compensation Plan Renewal

What else can we blame on COVID-19 this year?

Every year David Cichelli and The Alexander Group do a survey on sales trends and practices.  I’ve just looked back on the pre-Covid 19 2020 version. Lots of percentiles, averages, and all sorts of numbers that would satisfy even the most hardened statistician. But the most relevant data is on what likely didn’t happen as companies prepared plans for their newest Plan year.

This isn’t necessarily headline-making data, but it’s “attention-grabbing” if you are in a company that ignores this most basic principle of sales compensation planning and design, that being:

Sales Compensation Plans Are Annual Plans

That is a headline that should and must apply every year.  But as we all know, 2020 was not your average year.  Here is the context.

Practices for sales compensation plans begin with consideration of business conditions, individual markets, and growth projections.  So, when thinking about incentives for sales employees, it’s smart to first start with company opportunities and objectives, then begin the process of creating the desired alignment to sellers’ objectives through the use of monetary incentives.

Back to the forecasts.  Going into 2020, the companies that participated in Dave’s survey projected a median increase in revenue of 6%.  I’m going to go out on a limb here and say many won’t achieve that forecast.  Interestingly though, some did that and more.  For example:

Cleaning services

Grocery stores

Home exercise equipment

Mask makers (obviously)

And of course, Zoom

Chances are good that the salesforce for companies like these did very well in 2020.

On the other hand, the downside list (Hotels, Restaurants, Scenic Transportation/Vacations, Clothing) is a who’s-who of familiar brands as we’ve modified our plans and behaviors due to forced lockdowns.  If the salesforce is still employed in some of these industries, they might consider themselves fortunate.

Typically, over 90% of participating companies report that they plan to make changes to their sales plans in a new year.  That’s an excellent result in my opinion.  It doesn’t imply that 10% of companies have totally ignored the need to at least evaluate their plans, it could mean that they evaluated them and decided no change was needed.  And in 2020, some companies could’ve made multiple changes.

If you were in the original 90%, what sort of things might you consider for change?

  • Getting a better alignment to business strategy (#1 priority when I work with companies on their sales compensation plan designs is to make sure we have solid connection to the business strategy).
  • Changing the pay mix (base/incentive ratio), earnings caps, ramps/accelerators and performance measures are also frequently changed on an annual basis.

What about changes during the plan year?  Not something many sales people can get behind in my experience, but that doesn’t mean it wouldn’t be the right thing to do if need be (see lists of industries above, and any other company in 2020).  As a matter of fact, in a “normal year,” around 50% of companies make some sort of change, from minor tweak to total do-over!  What might be a good reason to make a change?  Here are a few that come to mind, in most cases clear as to why you wouldn’t “tough it out” until the end of the year:

  • Change in the business (new product/service, selling partner or channel, etc.) – i.e., new strategy
  • Significant upturn or downturn outside the rep’s control (again, 2020)
  • Inaccurate sales data so commission calculations are wrong or not trusted
  • Significant miscalculation of quotas
  • Lack of pay differentiation between low and high performers (is the plan attractive enough for your top performers?)
  • You can’t manage the plan – too administratively difficult
  • Your salespeople can’t understand the plan – too complex
  • Excessive costs, cost of sales well outside budget

And in some cases (a recent client comes to mind), there may be several items on the above list.  Again, with COVID as the reason, suddenly e-commerce became a more important channel and profitability projections changed, requiring different territory and customer classifications.  Product mixes changed.  Their customers went out of business… so many reasons to maintain awareness.

This year especially, we can see that selling has changed.  How companies can engage their customers and what influences the customer to buy must be considered when designing the sales incentive plan.  More data available to influence decisions to buy, less personal engagement, new roles providing specialized guidance and support – among many reasons to ask deeper questions about sales incentive plan designs and not just settle for a tweak.

Sales compensation plan change is a little more critical to most businesses, given the stakes involved.  I find it is also one of the most interesting parts of any compensation role I’ve ever had as the best way to keep a pulse on the organization’s driving business success factors.

—–

Jim Harvey is a Managing Partner with Alliance Compensation LLC (www.alliancecompensation.com), a team of seasoned experts and a trusted solution for clients across the Western US in public and private companies. He has over 35 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR. 

What else can we blame on COVID-19 this year? Every year David Cichelli and The Alexander Group do a survey on sales trends and practices.  I’ve just looked back on the pre-Covid 19 2020 version. Lots of percentiles, averages, and all sorts of numbers that would satisfy even the most hardened statistician. But the most […]

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New Year’s Resolution (Early Edition)

New Year’s Resolution (Early Edition)

Is it ever too early to start thinking about the New Year?  Especially after the year we’ve had (2020!)??  In most cases, I’d probably say yes, September is way too early. But this time, I’m looking forward to a New Year.

And with the thought of a New Year, who doesn’t start thinking about New Year’s resolutions?  A resolution (loosely defined here for my purposes) is something we think could make change for the positive, something we’ve always been meaning to do but never quite got around to.  A report I read said these were the top 10 New Year’s resolutions for 2020:

  1. Actually doing my New Year’s resolution
  2. Trying something new
  3. Eat more of my favorite foods
  4. Lose weight/diet
  5. Go to the gym
  6. Be happier/better mental health
  7. Be more healthy
  8. Be a better person
  9. Upgrade my technology
  10. Staying motivated

It’s the same list most every year, although I’d hazard a guess that the list might look a little different after having survived 2020.  Might even mention toilet paper.

What about your work resolutions?  If you are a compensation professional, resolutions for work should always include basic yet important resolutions to continue to learn and grow in the profession.  And then there is the ongoing list (referring back to my definition of resolution) of things we’ve been meaning to do but just never got around to.

Here is my HR/Compensation New Year’s Resolution list for 2021, and just maybe a few things that might apply to the end of 2020 as well.

  1. Focus on ways to make good programs even better.

This may include short- and long-term incentive plan designs, but if your programs are already working as planned then consider how effectively are they communicated – are you getting credit with your employees for what you offer?

Secondly, can your average manager effectively communicate Total Rewards?  If they haven’t been trained, would you expect them to be able to just because they are good at engineering or marketing?

  1. Pay attention to the changing legal and social landscape.

Pay equity is an evolving topic and worthy of your time, attention and priority.  Although all states don’t have pay equity laws yet, all it would take would be a majority vote in your legislature and a like-thinking governor to get your attention.  I speak from experience.

  1. Benchmark something.

A pretty generic statement, but when was the last time you checked to see how competitive your shift-pay differential was?  What percentage of employees can be rated in the top category?  If your pay structures were competitive?  The list is long.

  1. Use Total Rewards statements.

Who of us hasn’t thought about trying to convince employees they are well-compensated, especially in the “hidden paycheck?”  Takes a pretty good data base and good internal and external partnerships though.  You’ll never get it done unless you start asking those partners what their capabilities might be.  And planning, planning, planning.

  1. Get more involved in sales compensation plans.

Sales compensation can be a mystery if you’ve never been involved or immersed in it before.  Might this be a good time – thinking about the new year – to offer to be involved?  If you aren’t confident to take it on you can at least offer market data and be a part of the team.  Sales executives actually value your market data, especially when trying to understand how to pay their best performers.

  1. Write Job Descriptions.

Really?  Job descriptions?  Isn’t that last on everyone’s list – ever?  Just because we don’t enjoy the work doesn’t mean there isn’t value in it though.  Ask anyone who has had to match jobs in salary surveys, write recruitment ads, defend lawsuits, etc. (Besides, it will improve your creative writing skills which you will use throughout your career.)

  1. Write or review policies and processes.

Policies don’t write themselves, unless there are no policies (wow, that was profound).  A policy should be a statement of your intent when it comes to something, plus some explanation.  For example, how do sales people get paid when they are on a LOA.  Usually involves some internal discussion/debate to figure it out, but then you can execute consistently.

Processes are a little different in my mind, generally speaking to benefit you or your team to be able to replicate an approach, an analysis or such.  For example, how is market pricing done – weighting of surveys, how to match blended jobs, etc. 

In my experience, larger companies can generally get these sorts of resolutions knocked out because they have larger staffs that might be able to team up and knock something out.  Medium and smaller companies may be not – maybe you need a hand to take that new ground this year, check that resolution off the list for good.  So try something new — we at Alliance Compensation can help with your list. We have the experience, expertise, and work with excellence to get you your desired results.

And best of all, you don’t have to diet OR go to the gym!

——————–

Jim Harvey is a Managing Partner with Alliance Compensation LLC (www.alliancecompensation.com) , a team of seasoned experts and a trusted solution for clients across the Western US in public and private companies. He has over 35 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR.

Is it ever too early to start thinking about the New Year?  Especially after the year we’ve had (2020!)??  In most cases, I’d probably say yes, September is way too early. But this time, I’m looking forward to a New Year. And with the thought of a New Year, who doesn’t start thinking about New […]

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