How to Build a Compensation Program (Part 4 – Rollout, & Monitoring)
SUMMARY
You decided that you need to create, update, or realign your #Compensation Program. Now what? You know what you want it to do, but where to begin? That is what we will cover in this 4-part series. We will cover the steps needed to create the program, how to align it with your business goals, factors to consider, things that can go wrong, as well as Best Practices for developing your Compensation Program.
Previously, we went through an overview of the program, the Initiation Phase, the Design Phase, and the Implementation Phase. If you haven’t seen them already, it makes sense to review those before continuing with the final article. You can find them here:
Similar to the Implementation Phase, there is a lot of detail in this phase that pertains to your particular business. We, obviously, can’t cover every business type and structure here, so we are going to talk through the steps at a high level in this article, as we did for the Implementation Phase.
ROLLOUT
MAKE SURE IT IS RIGHT
There are two main topics here:
You only have one shot at this.
Make sure that the plan is right and that you understand what it is going to do to the compensation and motivation of every group, team, and individual.
As you are designing the program, run the numbers for really good times, and run the numbers for really bad times. Is the payout in both of those scenarios affordable? Does it drive the behavior that you want to see? Just do a quick litmus test on various scenarios to make sure it works as expected in all scenarios.
Once you implement it, if you are “overpaying” one group or individual, it is very difficult to reduce their pay next quarter or year. You can put “subject to change” on every page of the document that you give to employees, but the message that someone’s pay will be reduced is never received well.
Employees follow their wallets
It doesn’t matter how ethical, tenured, or moral an employee is – they will eventually follow their wallets. That is not being judgmental – we all do the same thing. Make sure that the Compensation Program encourages all the behaviors and performance that you want to see in a balanced manner.
DO A DRY RUN
Run the numbers for previous periods using existing KPIs and metrics. Make sure that the payout matches what you expect overall and for every individual.
Run different scenarios. Run a scenario where the data is 50% better than you expect. Run a scenario where the data is 50% lower than you expect. Make sure that the payouts match revenue/budget in both cases.
Do this before you communicate the details of the program with the staff.
COMMUNICATE!
Communicate early and communicate often. This cannot be overemphasized. It is incredibly important to be clear and concise with your staff on what the program is and what it isn’t. Explain why you are implementing it and what the company is trying to get from it. Be truthful and transparent.
Depending on the size of the organization, it may be appropriate to have town hall meetings, team meetings, one-on-one meetings, or a combination of those.
Best Practice: Communicate with the staff at both as a group and one-on-one. The former ensures that a consistent message is presented to the entire staff, and the latter allows individuals to ask questions that they likely won’t ask in a group setting.
Best Practice: Provide a handout to the staff that explains the program goals, KPIs, calculations, and payout details.
Best Practice: Explain how taxes impact the bonus payout. E.g., if you tell employees that they are getting a $1,000 bonus, they expect/spend $1,000 in anticipation of that, then they only see $700 on their paychecks after taxes, that can cause problems.
If this is a phased rollout, make sure that is communicated and documented clearly. Be transparent on when and why it will change in the future. Usually, that is because a process or tool isn’t currently in place. Those take time to develop and implement, and most people will understand that.
ARTIFACTS
Staff Overview Handout. A short, one-page handout that provides an overview of the Compensation Program. This may or may not be the same as the Staff Guide document from the Implementation Phase.
MONITORING
WHAT COULD POSSIBLY GO WRONG?
Let's talk through some of the common issues found after rollout.
Metrics or performance don’t improve
Despite your best effort, the program is not making the impact that you wanted. There can be a lot of reasons for that ranging from not enough money for employees to perform better to culture (and attitude) to unreasonable or unreachable goals.
Payouts are over budget
We have done our best to forecast what the payout would be at different performance levels, but it eventually comes down to meeting a budget for payroll expenses. We missed the mark. We are over budget.
Is this really a bad thing?
The first step is to determine if we exceeded performance in a way that made our budget (revenue) high enough to cover the unexpected increase in payout. If so, consider it a success and run with it! (But, you still need to read the next section and figure out what went wrong.)
领英推荐
What went wrong?
Determine why the payout was higher than your prediction (budget).
What do we do about it?
Now that we know what caused the payout to exceed our budget, what are we going to do to fix it?
One choice is to do nothing. That may be ok, if the dollar amount is tolerable and overall there is nothing major wrong with the calculation, so reworking the metrics and calculation can be avoided. (Re: the later paragraph on changing the program – which should be avoided, if possible.)
One choice is to increase the budget. If money can be pulled from another bucket to pay for this, that is a good option.
Another, more likely, choice is to fix it. Obviously, there can be any number of things to fix, based on your particular scenario. I am not going to try to address all of those here, rather I am going to focus on the impact on the staff of fixing it.
Remember the earlier section about staff thinking management has an ulterior motive? If they didn’t before, changing staff’s compensation “mid-stream” is opening the door for it. People don’t like it when something messes with their pay – that is their livelihood, and they dedicate roughly 1/3 of their waking hours to it. I don’t like it, and you probably don’t either. If something major needs to be changed, make a conscious choice to either “rip the bandaid off” or make smaller changes over time. That is your decision based on the culture at your company.
ACTION PLAN
The Roles & Responsibilities Table was created in the Implementation Phase. Make sure that each of the individuals responsible for part of the Compensation Program have it on their goals and are held accountable for it.
WHAT IS NEXT?
If you made it almost 40 pages into a document about Compensation Programs, you are likely in one of four of camps:
Camp 1: That was interesting, but I am not yet ready to start this in my company or department.
If you are in this group make sure that you add this to your list of initiatives for next year. Revisit the priority of it and anything that is stopping you from implementing it, as you plan next year.
If you think you may be in Camp 3 or 4 next year, go ahead and budget for getting outside help.
Camp 2: This was a great outline and provided the necessary information to get started, I am ready to take this on myself.
If you are ready now, don’t procrastinate. Start while all of this is fresh in your mind and you have energy behind it. Make sure that you set realistic goals and allocate enough time to get through all the steps.
Camp 3: This has me realizing that I need to do something in this area, but I still don’t know where to start or how to do parts of it. I need help.
Reach out today to a Trusted Advisor, whether that is a mentor, boss, Board of Directors, or an outside resource. Just make sure that they have done this before. As mentioned in the beginning, the “Law of Unintended Consequences” applies here, so having someone who knows this space is very beneficial.
Camp 4: I really want to do something like this for my staff, but I just don’t have the skills or bandwidth on staff to do this. I need help.
The same as Camp 3 – get help today. You know that you need to do it, it is fresh on your mind, and you have energy behind it. Start looking for help today. Before leaving for the day, reach out to at least one person, who may be able to help you with this.
TAKE ACTION
At the end of the previous articles, we paused. This time, don’t pause – you’ll lose momentum and focus on this. Regardless of which camp best describes you, take action. If this is something that you need to or want to pursue. Start today. Yes, it is a big effort, but done correctly, it will make a difference in your business.
ENGAGING US
If you enjoyed this series and are interested in other similar articles, please follow us on LinkedIn.
Many have reached out to us after reading the articles. There have been some great questions, which will probably warrant follow-up posts. If you would like to discuss your company’s Compensation Program, we are happy to have a complimentary consultation call with you - they usually take 30 to 90 minutes. Please message us in LinkedIn to set that up.
Also, watch maven.com for our upcoming training series on Compensation Programs.
BACKGROUND
John has developed, overhauled, or updated over a dozen Compensation Programs in his career, both in his own company and corporate organizations, as well as for clients in other environments, like SaaS, warehousing, and call centers.
With a focus on Operations, Strategy, Cash Flow, Integrations, and Technology, John is an entrepreneur, COO, and a Principal at ExecHQ, an executive advisory firm that serves the needs of clients ranging in size from startups to mid-market private companies, non-profits, family offices, private equity firms, venture capital, and multi-generational businesses.
Resource for Business Owners| Leadership Team Development | CFO/CEO Advisor
2 年Very important information. Check out all 4 articles.
Advisory services for privately held, family office-owned, and PE-backed businesses: Chief of Staff as a Service | Strategy & Execution | Executive Coach | Governance | Profit Optimization & Valuation Enhancement
2 年Great work John Main. This series of articles needs to be at least one webinar.