One of the fears many business leaders have about tinkering with compensation is that employees won't accept the change when they introduce it. They worry about "push back" when announcing a more structured annual incentive, for example, or if they move in the direction of a pay for performance philosophy. Most of these concerns emerge from a fundamental assumption that employees will view any change as something being taken away. This doesn't have to be the case.
Introducing any kind of structural change in compensation requires a strategic communications effort that will create the right paradigm for moving forward. As indicated in my last post, choosing the right language will be critical. Words such as clarity, partnership, value sharing, growth, contribution and increased opportunity will be important ingredients. However, beyond the choice of words, leadership has to begin a top down education about the future of the company that will create a fertile field in which to plant information about changes in pay philosophy and programs. The messaging from the CEO and those close to him should address the following:
- The Future Company. Tell employees where the business is headed and why that is significant. Build confidence in that future by offering enough data about its potential achievement that the message is credible. Build anticipation about what it means for the company to achieve that level of success--market acceptance, competitive advantage, sustained growth, etc.
- A Shared Future. Help employees--particularly key producers--see themselves in the future of the company. Let them know that their unique abilities are critical to the attainment of the company's growth goals. Create a feeling of partnership in growing the future company.
- Value Creation. Paint a picture for employees about what it means to "create value" and why that is significant to sustaining a profitable organization. Employees need to envision their role in value creation and understand the "abundance mentality" concept--that there is not a limit to the value that is created and what can be shared as a result.
- A Wealth Multiplier Organization. The value creation discussion should dovetail with one that demonstrates the intent of the company to become a wealth multiplier. This means that the goal is for value to be shared with those who help create it--and that when more value is created, more value can be shared.
- Value Sharing. Explain to employees that wealth multiplier organizations are value sharing organizations. The pay philosophy of the company will be one of sharing value with those that help create it--and that the intent is that all contributors will benefit from the success of building the future company.
- Compensation Changes. In the aforementioned framework, the introduction of a restructured bonus or salary structure or long-term incentive plan has a context that properly aligns it with the opportunity an employee has within the organization. It is part of a value sharing approach in which the company intends to multiple wealth for all contributors.
Usually, if dramatic changes in compensation are being introduced, they are phased in over time. A transition period is established so employees have a chance to see where the changes are headed and prepare for them without feeling panicked about the change. For example, if the company ultimately wants employee incentives to be 50% short-term and 50% long-term for Tier 1 employees, they might have the split be 75/25 the first year, 70/30 the next, then 60/40 before transitioning fully to a 50/50 split. This kind of transition communicates to employees the company wants to align it's compensation structure with building the future company and share value with those who create it while respecting the need for employees to get used to the shift.
While what's presented here is not comprehensive, hopefully it helps you envision how compensation can be framed in a broader strategic discussion when changes are introduced. While your specific approach might differ, if the intent described here is conveyed, the "right" employees will be more open to change.
For more on this topic, view our webinar entitled "How Do I Create a Competitive Advantage with my Compensation Plans?"