Jim Schleckser, The CEO Project, and Kim Conklin, KC Consulting, debate the merits of compensation and incentive plans. Listen to this Podcast for entertaining bantering between Jim and Kim as they navigate this extremely important and relevant topic – fair compensation.
What does Fair Compensation mean? It means when employees look internally, other people that do more or less the job I do are paid more or less what I'm paid. And when I look outside, people that do more or less what I do make more or less what I make. 90 something percent of the population feel they are paid fairly for their effort, for their skills, experience, background, knowledge, etc. Where that sometimes runs into trouble - people that are fully coin operated, meaning they are all about maximizing their personal income and they will pound you. It doesn't matter where they are relative to anybody else, they will just pound you on compensation always. The other place that I've seen problems in this is when they have what I would call poor referent groups. These mercenaries are going to change jobs every year or two, maximizing their income.
One of the things that people do is go on salary.com and just plug in a job title and assume that their title matches the exact same job and then they wonder why it's 30 grand less. When you are looking at compensation, you need to look at the actual responsibilities of the person and the actual responsibilities of whatever job you're comparing it to. Sometimes a VP isn't a VP and a director isn't a director.
Here are some important tips for any organization. For details, listen to the podcast.
- You need to have a job banding framework with market data for job families within that band.
- You need to be careful about what you incentivize.
- For sales, you need to figure out the right mix of base pay vs incentive pay.
- For sales, you start earning your bonus or your incentive, whatever, whether it's commission or it's a management deal at 80% - a pretty healthy percentage of last year's number. And you earn it as we go from 80 to a hundred.
- For executives, the target to open the pool of money is the EBITDA. Typically it's your EBITDA budget and everybody has a different view on this. Some companies start paying it at 75% of target. I've never seen anyone go below 75. But yeah, typically, but it's not over prior year, it's at that 80, 85% of budget.
- Compensation and employee value must be aligned.
- Equity adjustments are important to ensure competitive wages.
- Critical benefits – 401K match, flexibility to work from home, mental health benefits, financial counseling, maternity and paternity leave