Building Unified Financial Visions

Tom Miller
April 22nd, 2010 by Tom Miller

Does Your Company Have the Three Essential Incentive Plans?

Incentive plans are described in lots of different terms—commissions, bonuses, STIPs, profit sharing, and so forth. We keep inventing different structures but we call them by the same old names.

 The way I look at it there are really only three. Everything else is essentially some variation of these: sales incentives, productivity incentives and growth incentives.  

Of course sales incentive is another term for commissions. We pay these to those employees who bring in new revenue. The incentives may be in addition to a base salary, or they may stand alone as the sole source of payment. New sales, of course, are the lifeblood of any organization. And sales personnel are commonly among the highest paid employees.

 But what about “productivity incentives?” This is my way of describing any form of variable pay that is tied to productivity improvements. In my view, this concept should replace the notion of a “bonus” because no variable pay is truly earned unless it comes from an improvement in employee productivity.  In the future, the only flourishing companies will be those that have demonstrated the ability to out-perform their competitors. Thus, every employee must become “productivity conscious.” In addition, improvements in productivity provide the fresh profits needed to finance the incentive. So, instead of “pay for performance” think, “pay for productivity.”

 The third category is “growth incentives.” These are the payments made for helping to create the future company. Sales and productivity incentives run today’s company and create the capital to grow future company. But future company doesn’t happen unless employees are focused on building it. And those who do should share in its value. Thus, growth incentives are essential for any company that believes it will be bigger in five years than it is today. Growth incentives should be accrued and paid in the future when new value begins to be realized.

 Every company that’s serious about growth and sustainable profits needs three types of incentives: sales, productivity and growth.

Posted in Business Growth & Compensation, Business Growth and Rewards, Current Pay Trends and Topics, Incentive Planning | 1 Comment »

Tom Miller
April 14th, 2010 by Tom Miller

Clarity—the Key to a Unified Vision for Growing Your Business

In my last blog I wrote about the need to get clear on your employees’ goals and needs. Creating compensation strategies without knowing your employees’ goals is as foolish as a waiter serving a customer the meal of his (the waiter’s) choice without even handing out a menu.

 Let’s suppose you’ve figured that part out. You’ve examined your compensation programs through the eyes of your employees and you’re confident that your total rewards budget is as efficient as possible. Now what?

 Time to ask the employees to do their part. They need to understand that maximizing the value of their rewards plan is tied to the success of your company. If you don’t succeed, they don’t either.  Let the employees understand that the more profitable your company is the more you’re able to share with them. (Let’s not forget that employees are interested in much more than financial rewards. Visit here for a reminder of the other important things that keep them there and keep them satisfied.)

 Where to begin? Ask some of your employees to answer these 4 questions:

  1. What’s the future of our company look like to you? (Vision)
  2. What are the key things that have to happen for us to grow and succeed? (Strategy)
  3. What contributions are you most excited about making? (Role)
  4. Why is the creation of our future company important to you? (Rewards)

 If you don’t hear the answers you’d like to hear you’ve got some work to do. You need a unified and committed team to succeed in today’s world. Getting your employees clear on those 4 issues will lay a foundation for that unified team. As employees understand how they can contribute to the creation of a compelling future (Your Vision) they will realize how committed you are to helping them achieve Their Vision. Sounds like a “Vision-Link.”

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Tom Miller
April 6th, 2010 by Tom Miller

Look at Your Comp Plans Through the Eyes of Your Employees

Employers are constantly tinkering with their compensation programs. Are our salaries at market? Couldn’t our bonus plan be better? Are we spending too much on benefits? Notice how each of these questions (and there are lots more like them) focuses on cost and or effectiveness. And effectiveness usually means “does it work for the company?”

After all that effort it’s easy to see why employers are often surprised when an employee quits and takes a job for “more pay” somewhere else.

Employers would be wise to spend a little more time looking at their comp plans through the eyes of their employees. Ultimately, all elements of the total rewards package are evaluated by employees through three lenses: (1) are my cash needs being met? (2) are my security needs being met? (3) do I have a meaningful wealth accumulation opportunity?  (I realize there are other real elements of the total pay program such as PTO, sick pay, etc. But I’m putting those in the “lifestyle support” category. Today I’m talking about the core or largest elements of direct pay–salaries/wages, bonuses, long-term awards, retirement and health and welfare.)

We conduct employee surveys about the perception of the value of pay commitment. I just completed our main survey–the Alignment Appraisal–for three different companies. Here are some of the average employee scores (think 1-10, 10 being the highest).

The company’s cash compensation program effectively meets mypersonal lifestyle needs. (Scores: 4.0,  5.5, 6.2)

The company’s benefit programs (health and welfare plans) offer adequate flexibility and coverage to address the potential financial risks I face. (Scores: 4.0,  8.0,  8.2)

I perceive a meaningful wealth accumulation opportunity through our compensation and rewards programs? (Scores: 3.5,  4.0,  4.9)

Two of these companies obviously do a pretty good job of providing strong health plans. Other than that these scores indicate to me that employees see their rewards programs as average or below when they come to actually meeting their personal needs, goals and expectations. (There are plenty of other responses in the survey that support these conclusions.)  By the way, these scores are very typical. We don’t usually see them much higher.

I consider this a serious problem! The investment in compensation for employees is huge–almost always the biggest expense on the income statement. Why isn’t their greater concern about matching this up with what employees really want and need?

This problem is very often one of perception. But it’s a common one. Right or wrong, employees don’t think employers are really that concerned about their personal financial needs. Think about the implications of this to morale, productivity, retention, recruiting–as well as growth and profits!

One of Stephen Covey’s “7 Habits” was to “seek first to understand, then to be understood.” Employers who learn to look at their total rewards investment (TRI) through the lenses of their employees’ three needs will find that they strengthen the partnership relationship with their employees. In the long run everyone wins–employees utiilize their rewards dollars more productively and shareholders reap the benefit of long-lasting improvements in culture along with  greater profits and real equity value.

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