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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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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.

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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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Is Sales Compensation Coming From The Battery Drawer?

Is Sales Compensation Coming From The Battery Drawer?

My mouse started acting up the other day. That usually means the batteries are wearing out, so I headed over to the battery drawer for new batteries.

What a mess. Lots of batteries, finding a fit wasn’t the problem. I just had no idea if any of them were any good. So I did what was necessary, which was try all the various combinations of those batteries until I got something like the performance I needed to make the mouse run again. But at this rate I have no idea how long it’ll work because I somewhat randomized my chances for success by just taking what I could find. (If your battery drawer is better organized than mine, I salute you!)

When you start “going through the battery drawer” to design a sales compensation plan, you have just about as much chance to get it right as I did with my mouse. Problem is, the stakes are a lot higher for your company and the sales force. You might find a great combination that results in a super-charged field sales team, producing at unheard of performance levels. Winner winner, chicken dinner!! On the other hand, think of all the other possibilities, like great payouts but not so great results, or any combination that results in detrimental effects on the sales force or the company..

So randomizing the inputs probably isn’t how you’ll be successful in this particular compensation expertise. You need to be thoughtful with sales compensation plan design so unlike my experience with the battery drawer, you’ll produce the kind of excellence you can rely on. For example:

  1. Batteries might not be the problem. Sure, it’s easy to check the batteries first, but you should always start with the owner’s manual! Consider all the factors that influence the results your sales force are getting. Are they trained? What’s the status of your product or service, are you growing or falling behind the competition in features and benefits? Is marketing generating demand? Did the business strategy change and the sales plan didn’t? Are finance or other processes keeping the sales force from getting desired results?
  2. Use the right size batteries, put them in the right way and don’t mix sizes. I’ve opened up battery cases and found the wrong sized batteries even though almost every battery case made is pre-molded to the right size. But desperate times call for desperate measures, right? It can be so easy to just try something and hope it works and everyone can get back to work. But not having the right mix between base and incentive, unclear sales role definitions, having the wrong people on sales incentives or using any old performance measure mix may work for a while but will eventually short out.
  3. Some batteries aren’t accessible. Many newer electronic products use battery power, but you aren’t supposed to open the battery case. If you’re being told there’s nothing wrong with the sales plan, and you haven’t seen any supporting performance data, I’d suggest getting another opinion. Typically sales operations groups are rich with data, and with a little market data you can fairly quickly get an idea for just how effective your plans are, and whether getting at those batteries might just be a worthwhile project after all. For example, are top performers earning at the desired excellence levels? How much are underperforming reps earning? Did most of the sales force achieve quota last year? Were they supposed to?
  4. Don’t use used batteries, and safely dispose of the old ones. Chances are your business isn’t really exactly like the one your new sales VP came from, or where your HR/compensation peer works. You have so many options and alternatives when it comes to designing sales incentives; don’t give away your creativity to others. And after you’ve tried something and it didn’t work, make sure you’ve documented what the issue was. Chances are you are probably doing something right but could just use a fresh set of eyes (or new batteries?).
  5. Sometimes you have to go to Batteries+. Although batteries are available at most corner stores, sometimes you need an expert to help figure out what to do next. Over the years I’ve found that most people seem to think they are compensation experts. As a matter of fact, count the total employees in your company and subtract one and that is the number of people who seem to know as much (or more) about compensation as you do.  And you probably don’t need an external consulting expert for every single thing every single year. But if it’s been a while and you’re not sure you’re still getting the most out of sales compensation, there are folks like me who do this work, and by the way really enjoy it. I’ve found few places in a company where you can learn more about a company and what it takes to make them successful than in the process it takes to design sales compensation plans.

Last night we were going to sit down and binge on a show on one of the streaming services. I went to turn on the TV and a message came up, “No Source Identified” so I take the remote and start pushing buttons, nothing happens. I shout downstairs, “Bring up 2 AAA batteries for the remote!” One, I hadn’t opened the remote fully other than to see it had AAA batteries, and two, I hadn’t thought what else might be wrong. Turns out I was wrong on two counts (the wi-fi needed to be reset, and the remote required 4 AAA batteries). After I reset the wi-fi, everything worked and we happily binged away.

I’m happy again, and continue to learn about batteries.

So randomizing the inputs probably isn’t how you’ll be successful in this particular compensation expertise. You need to be thoughtful with sales compensation plan design

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