A generous person gave three business partners $1 million and said they could use it however they wanted. The only caveat was that the business plan allocated 70% of the money to predetermined overhead. This could be reduced to as little as 55% if the partners planned and executed carefully. While all three individuals agreed to accept the money, they had very different ideas on what to do with it. Continue reading
I hope your employees aren’t complaining about your compensation programs. If they are complaining out loud, then the problem has likely been there for a while and you need to address it post haste. But, that’s not what this article is about. We all can, and do, identify problems as they become vocal. I want to talk about compensation programs that people aren’t complaining about.
Most of us have been taught that silence is golden. That simply isn’t true in our line of business. When it comes to pay, if people aren’t talking about it then Continue reading
Those of you who regularly read my articles know I often view the world from a different perspective. This is one of those posts. WorldatWork is the main professional association for total reward professionals. Each year they put on an excellent conference and this year was no exception. The theme for the event was “Grow.” The setting was Minneapolis, MN. The weather, as one might expect, was capricious. The conference had tons of great sessions and speakers, but the most important lesson I learned was from Minneapolis’ famous Skyway.
If you have ever been to Minneapolis, the Skyway is sort of a hamster “Habitrail” for humans. It is a system of above ground tunnels that provide shelter from the extreme weather conditions that residents call “seasons.”
After using the Skyway to get from my hotel to the conference site, I realized that the system was exactly like incentive compensation. Continue reading
Anyone who has taken a class or performed a Google-search on performance goals has learned about the concept of “SMART” goals. The most common breakdown seems to be: S – Specific, M – Measureable, A – Attainable, R – Relevant, and T – Time-bound. We all seem to know this and yet many still seem to have problems creating successful pay for performance programs. I would like to propose a new D.U.M.B. approach that celebrates the spirit of insanity. Insanity is being defined as the repetition of doing the same thing, again and again, with the expectation of different results. If SMART goals aren’t working for you, why not try DUMB goals?
D.U.M.B Goals are: Continue reading
My first real lesson in negotiations was simple: “In a perfect compromise no one walks away completely happy.” Compromise, like sales compensation, requires both sides to give up something in order to get what they really want. When done correctly, there is balance to the final resolution.
Sales compensation is both the easiest and hardest of incentive compensation. Pay must drive specific behaviors, but it needs to avoid unintentional bad behavior. It must align with success at many levels, Continue reading
Many great bakers are average cooks. Many great cooks avoid baking all but the simplest of things. Baking requires precision in measurement and actions. Even a small mistake can result in an inedible mess. Cooking requires creativity and flexibility. The best outcomes are usually a result of unique twists that match the food to the audience. Compensation requires you to be both a baker and a cook.
A client recently had a member of their board ask that a new analysis be done for a new executive in exactly the same way as performed for a prior executive a couple of years ago. The company is unique in industry, location and compensation philosophy. Its peers have continued to grow, change and even disappear over time. It is simply not possible to replicate the exact recipes and processes used to create the numbers from years ago (or even more than a few months ago.)
Executive pay is often more like cooking than baking. You are beholden to the ingredients that are fresh at the time you perform the task. Data sets, like great veggies or herbs, are often only available in small quantities at certain times of the year. Some professionals thrive in this environment, loving the swirl of possibilities and the frequent changes that must still result in predictable success.
Broad-based pay can often be more like baking than cooking. The data sets are larger and less volatile. Like flour, butter and other less perishable ingredients, you can expect some level of consistency throughout the year. You have a specific recipe that you can follow with only perhaps a replacement of the fruit that goes in the pie or muffin. Many professionals live for this organization, process and exactness.
What we seldom recognize is the precision required to create great art or the creativity required to make a recipe better.
Cooks must practice new things all the time while being flexible with both the ingredients available and their patrons’ tastes. They must learn flavors and techniques to build meals from a wide range of disparate sources. All of this practice must come together at the time of execution so that quick decisions can be made and executed without fear or hesitation. Differentiation is easy and variety allows for many different choices at every meal. Execution is often as much a matter of taste as it is technique. Incentive pay professionals are chefs.
Bakers must work and rework recipes, sometimes for years, to create something that is completely new and confidently repeatable. Differentiation is hard since the ingredients are so similar. Since there are also fewer opportunities for baked goods in any meal, the final product must have wider application and appeal. Execution is about rules and techniques first and taste will generally follow. Board-based pay professionals are bakers.
In reality, most compensation professionals do a little of each of these nearly every day. They are less likely to be as specialized as the pastry chef at a five star restaurant and more like the head chef at the local family café. In other words, you are right. Your job is probably harder than most people realize. When you do it right, most people simply get what they expected all along. When you do it wrong it is obvious to everyone.
In your current position do you identify more as a baker or cook? Which is more enjoyable for you?
Dan Walter is the President and CEO of Performensation a firm committed to aligning pay with company strategy and culture. You may want to get a copy of “Everything You Do in COMPENSATION IS COMMUNICATION” written by Dan Walter, Ann Bares and Margaret O’Hanlon of the Comp Café as a practical guide to improving the communication process. Dan has also co-authored of several other books you may find useful including “The Decision Makers Guide to Equity Compensation”, “If I’d Only Known That”, and “Equity Alternatives.” Dan welcomes connections on LinkedIn. Follow him on Twitter at@Performensation and @SayOnPay.
Answer by Dan Walter (original question on Quora)
Great question, and one that is getting more attention lately as more sales forces are evolving from selling things with a quick hit of revenue, to selling services with long tail of revenue.
Traditionally sales people have been viewed as “coin-operated”. This has meant they sell something, the company gets paid fairly quickly and the sales person gets their share. There may have traditionally been a long-term component, but it was small… relative to annual, or even shorter, incentives.
Evolving to an “annuitized sales model” requires taking a new look at sales compensation. A $100,000 sales that will be paid over 5 years requires a different pay program than a $25,000 sales that is paid this quarter.
Stock options and other forms of equity compensation are designed as mid-term and long-term incentives and retention devices.
- Do you sales processes take a very long time? Think in terms of years, not months. If so, stock options may be a good tool.
- Does your sales process include selling a small level of services today with the goal of building the level of services over a long period of time? If so, stock options may be a good solution.
- Does a sale at your company take months or years to get fully paid (ex. 3 years contract paid in equal monthly installments)? Stock options may also work in this scenario.
- Are your “sales people” really some hybrid of marketing, relationship manager and sales pro? If so stock options might make sense.
- Are your sales people also professional services people. Essentially consultants who are “rainmakers”? This can be a great time to use stock options.
- Are your sales people selling “stuff”? And, are they paid a good commission on that stuff, based on some level of profit margin to ensure the company also gets its share? This may NOT be a great place to use stock options, unless it is a bigger piece of your culture and compensation philosophy and used as a form of communication to tie everyone to common goals.
Figure out where you are (or where you want to be) relative to the information above. Then take a look at the answer provided by Jason Lemkin in this thread as it also has some important considerations.
Recently, it was reported that employees at the Egyptian Museum in Cairo accidentally broke the braided beard off of the iconic burial mask of King Tutankhamen. Even more disturbing is that the beard was quickly glued back on using common epoxy. To make matters even worse, the epoxy got on the face of the mask, leaving marks where it was hastily scraped off. Curators at the museum said they were told to make the repairs quickly since the mask is one of the main attractions (revenue generators) for the museum.
I have seen many broken incentive plans similarly repaired. Incentive plans are tightly Continue reading
The holiday season is now in the rear-view mirror and everyone reading this post has recently had to answer some version the question, “what exactly do you do?” Maybe you had to explain it for the umpteenth time to a family member who spent the past year sending you articles about payroll. Maybe you had to explain it to someone who blames you, personally, for the disparity in pay between executives and “everyone else.” Perhaps you had to deal with why you had not yet fixed the minimum wage, income taxes, health care or some other headline issue. Or, this might have been the year where the light went on and someone Continue reading
World at Work defines Total Rewards as:
“All of the tools available to the employer that may be used to attract, motivate and retain employees. Total rewards include everything the employee perceives to be of value resulting from the employment relationship.”
We have invented more tools with corresponding rules, regulations and variations. And our employees have become more diverse. Explaining the totality of Total Rewards has become increasingly difficult for many in and Continue reading