Compensation Strategies That Work
By: Colleen Aylward
The hiring market is heating up, and creating compensation strategies that please top players will help you recruit the best and ensure the ones already on your team stick around for the long haul.
The hiring market is once again in the hands of candidates, those highly sought-after commodities that were beggars just months ago. As the employment market's recovery gains steam, corporations will find themselves going head to head with rivals for the best executive talent--a competition that could quickly drive up compensation packages.
But what should those compensation packages be? Can a company develop a compensation plan that will retain employees in an age where neither workers nor employers are expected to be loyal for any length of time?
Trends are actually moving back to the days of old when there was favoritism towards the top producers, and time and dollars were spent on personal and professional growth of those favored sons. Here are a few ways companies are thinking about compensation these days and how you might be able to employ their strategies in your business.
Variable Pay
One of the biggest trends in the industry is the move towards performance-based pay, where variable pay is the most significant component. No company wants to increase fixed costs (base pay), so variable pay, which focuses rewards on your top 10% performers, provides cost and flexibility advantages. If a salesman makes a sale that is profitable, share that increase with him. If a marketing vice president develops a brilliant new plan that doubles sell-through, share that increase with her. If an engineering manager makes a development deadline, pay him for hitting that target.
Many companies now are moving toward a model as low as 35%-40% base salary and the rest in performance awards. This includes compensation for senior management.
Profit Sharing
Scott Armstrong, one of the owners of Brenthaven, a leading manufacturer of high-end notebook computer cases based Bellingham, Wash., says the top three executives of his business have a simple plan: They take a portion of the profits each year, and split it three ways.
Profit sharing is different than performance bonuses in that it is usually tied to overall company profit, no matter who made it happen. It is often an attempt to get the team to work together toward the common goal, without regard to individual contribution (which is covered under performance bonuses). This is usually an annual award with lots of fanfare leading up to it. The "chosen few" get to participate, and the competition to make it into that circle seems to be good for business.
Matching Compensation with Core Value Embracement
The new breed of worker wants work-life balance, benefits, comfort, challenge, interesting work, and some sense of security. Employers are putting plans in place to nurture and retain but are expecting certain levels of commitment, passion, and performance in return.
One of the most poignant examples of this trend in employee compensation is the approach Getty Images takes. In a recent keynote to The Conference Board, Getty co-founder Jonathan Klein laid out the company's core values:
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Trustworthiness, Transparency, and Openness
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Caring About the Business and Colleagues
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Leading by Example
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Raising the Bar
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Embracing Collective Responsibility
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Bringing Solutions
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Owning Problems
Each quarter, Klein holds an all-employee broadcast covering each of these leadership principles.
"The leadership principles are front and center in our hiring practices," Klein said in his keynote. "They are an integral part of our recruitment process. In fact, we hear more and more from potential hires that they are interested in working with us because of the leadership principles."
All employees are rated each year on the leadership principles. A significant portion of their bonus is based solely on how they behave. This also is true for promotions.
"My own bonus is based on my performance against them, as are the bonuses of our entire senior leadership team. That's how seriously we take building a single culture at Getty Images," he said. This from a man who was faced with merging 40 different acquisitions under one roof.
Keeping the Braintrust With Creative Benefits
Consider that 78 million baby boomers turn 60 this year, and according to a recent Korn Ferry Quiz of 2000 of them, 44% will work beyond 60, but not necessarily in their corporate America jobs. Companies will need to consider some compensation strategies to keep that knowledge around, instead of having them "retire" to start their own businesses or consulting practices, as the trends show. Why keep them around? A six million person-to-job shortfall by 2010, according to the U.S. Bureau of Labor Statistics is a good reason.
Many baby boomers are opting out of retirement these days to pursue meaningful activities such as teaching, sitting on boards, part-time work, volunteerism and leisure activities, according to Boston-based New Directions, a career/life transition firm for senior executives recently interviewed in an article by the Society of Human Resource Management. Jeff Redmond, president of New Directions, suggested that one way to get C-level executives talking about their plans for the future is to offer life planning as a benefit... Learn what people plan to do and work that into a succession plan.
Individual Perks
Another option is to manage one on one. Listen to your top employees and build a plan to please each individual, rather than a global benefit plan with a menu so large it is sure to please everyone. Beverly Kaye, a popular career coach with Career Systems International, counsels her clients to "Spend time with your executive(s) to define what really rings their chimes... and then explore dozens of solutions." The key is to identify what is of value and what motivates individual employees, and then develop goals around those needs and motivations to be sure you can meet their expectations.
