Compensation Tips for 2013
Now that we’re at the start of a new year, many organizations are looking at their compensation strategies and attempting to break new ground in their effort to develop pay programs that will support business growth. Hopefully, the issues discussed in this space, as well as the webinars, white papers and e-books VisionLink has produced, will give you a “leg up” in your attempt to improve things. That said, I thought it might be helpful to offer a few tips about steps to consider taking this year if you haven’t already addressed them. They are in no particular order of importance–just a kind of “brain dump” on compensation issues that should take priority in your pay planning.
- Plan compensation strategies that will address a high income tax environment. Everyone, but especially your highly compensated people, are going to face higher tax rates in 2013 and beyond. It’s time to consider a strategic deferred compensation plan if you haven’t previously, or shore up the one already in place. (For further insight in this regard, consider watching our February webinar entitled: “Compensation Strategies for a High Income Tax Environment.”)
- Put more emphasis on value sharing and upside earnings potential and less on guaranteed income. Hopefully your company is committed to innovation and keeping at bay those organizations intent on the “creative destruction” of your business. You will need to recruit talent that has entrepreneurial capacity and inclinations. They will want a pay program that simulates what they could have if they started their own business. (For more ideas in this regard, check out our December 2012 webinar entitled: “The Future of Compensation: What’s Next and Why.”)
- Begin measuring the return on your company’s total compensation investment; know your organization’s “productivity profit.” If you’re going to share value you’ll need to get very good at defining value creation for your firm. Incentives (value sharing) should be “self-financing” and come out of the productivity profit of the company. This is the profit that is calculated after an appropriate capital “charge” is assessed against the earnings of the business. The capital charge reflects the amount of return shareholders should expect to receive on the operating capital already at work in the business. (For a more complete understanding of this concept, check out our September 2012 webinar entitled: “Compensation Standards that Both Shareholders and Employees Will Embrace.”)
- Adopt a “Total Rewards” approach. This means you recognize that financial rewards represent only one of four elements employees will evaluate this year in deciding to either join your company or stay with it. They will also want to know if the company has a compelling future–and that its fulfillment relies on their unique abilities and contributions as key producers. Premier talent will seek a positive work environment–one in which it enjoys the team of people it works with, the nature of its role in the organization and that it has the ability to get problems solved. Finally, your best people will want to know that there are personal and professional development opportunities. This is not just training. This means that their unique abilities are aligned properly with the company’s resources so they get better at what they do because they are part of your organization.
- Implement an effective rewards reinforcement strategy. A “B-” plan that is highly promoted and well communicated will have more value than a “A+” plan that employees heard about once in a launch meeting but hasn’t been talked about since.
- Craft and communicate a compensation philosophy. Put it in writing. Make this the year you clearly define what you will “pay for” and how you feel value should be shared in the organization. Define where the company wants to be relative to market pay standards for salary versus total compensation (including value sharing). Communicate that philosophy as often as you can in team or company-wide meetings and whenever or wherever the vision and strategy of the business is being discussed.
There are certainly more things that could be added , but that’s a pretty good list for now. If you do the things indicated here, you will see measurable improvement in your ability to recruit and retain the best people and keep them properly focused on the outcomes you want achieved. You will sense a greater ownership mentality emerging in the organization and a more unified financial vision for growing the business will be apparent.
The proof is in the doing. Try it. Test it.