What Results Are You Looking for from Your Compensation Plans?
Occasionally I’ll take a call from a business owner or CEO who is requesting help with a compensation issue. For example, last week someone called requesting help on his bonus plan. He inquired about our capabilities, background, process and fees. I did my best to answer him but only after asking an important question. Here’s how I set it up.
“Suppose we deliver the help you’re requesting. Then, imagine it’s a year from now and you call me to say, ‘Tom, that plan you helped us design really had a great impact in my organization! I couldn’t be happier.’ (Now here’s my question.) What is it you’d be noticing that’s changed?”
After a brief pause he suggested that his people would be more focused, more united, and more energetic.
I admitted that would be great, and then asked, “How would that be impacting your financial results?”
His response: “More sales and higher profits.” Exactly! But why?
It’s not the bonus plan per se. It’s the unity that comes from a team that’s committed to and focused on the same results. The bonus plan (as well as all other components of pay) must communicate to the team how they will participate in the value they help create. Once they understand and believe they’ll participate in something that’s worthwhile you’re on your way to creating a unified financial vision for growing the business.
So, next time you’re examining your compensation plans be sure to ask yourself (a) What kind of change do we want to notice? and (b) What financial results to we expect to follow?