Compensation Strategies

Not Having a Plan Could Break the Bank

Presented by James C. Fox

Strategy and Pay

Pay is a reward for behavior How and what you pay should support what you want to reward Pay also needs to reflect who you are as an organization Pay should reflect the situation that your company is in

You get what you pay for

Internal focus vs. external focus Focus on products vs focus on services Focus on fairness vs. focus on competitiveness Focus on risks vs. focus on no errors

You pay what you have

Small fish in big pond or big fish in a small pond? One of a kind, or one of many? Organized or un organized? Lay offs or full employment?

Pay with what?

Money Bonuses Premium pay, shift pay Ownership Cash recognition Benefits Perks Career advancement Training Personal growth Employment security Advancement opportunities Organizational support Work environment Title Organizational affiliation Work variety Work challenge Autonomy Work meaningfulness Feedback

Pay with what?

Direct Financial
Money Bonuses Premium pay, shift pay Ownership Cash recognition

Pay with what?

Indirect Financial
Benefits Non cash recognition Perquisites

Pay with what?

Affiliation
Organizational support Work environment Organization citizenship Title

Pay with what?

Work content
Variety Challenge Autonomy Meaningfulness Feedback

Pay with what?

Career
Advancement Personal Growth Training Employment security

Balance
Your compensation philosophy and the kind of company will lead you to answers on how to balance each of these compensation vehicles You may underpay in one area, but over pay in another

Examples
Large government contractor
Largest employer in the area Non union Most of work done under contract with government

Small, start up, dotcom

Highly competitive market for talent Other companies raid employees Non-union

Base Pay
Base pay should be considered the price you pay for membership to the club It ensures you that the employee
will show up at work that you may call them at night or weekends with business questions that you can send them out of town and disrupt their personal life

Base Pay
Must be within 5% of market to be competitive Most companies highlight the 50th percentile Some companies will target the 75th percentile Lately, companies are targeting the 60th percentile

Incentive Pay
The price you pay to get employees focused on what is important to the company.
Addresses motivation and reward for achieving a pre set goal Should be related to critical areas that the employee can impact line of sight should be direct Should consist of no more than 3-5 goals Simple and measurable is best

Incentive Pay
Balanced Scorecard Approach
Financial Operational Customer Learning and growth Corporate Division Business unit Individual

Multiple levels of organization

Incentive Pay Targets

Top Executives VPs and Directors Mid-Management Supervisors Others 50-100% of base 30-50% of base 20-30% of base 10-20% of base 0-10% of base

Needs to be at least 5% of base to have an impact.

Long Term Pay

The price you pay to retain employees
Addresses long term security Should tie individual to the companys future Should be tied to the growth of the company over time Spans multiple years (3-5 or longer)

Long Term Pay

Stock options for public companies Phantom stock for public and private companies Long term incentive plans for public and private companies Traditionally tied to value of the company, or some long term goal (achieving $X in gross revenues)

Long Term Pay

Level Executive Director Manager Grant value* 60-100% 50-70% 30-50% Est. Future value* 30% 25% 20%

* As a percent of base

The Balance
Pay Starting Market Component Growth Base Low Mod Mature Declining

High High
Mod Mod Mod

High Mod
Low High High

Incentive
Long term Perquisites Benefits

Low
High Low Low

Mod
High Mod Low

The Balance
Large government contractor
Base: Incentive: Long term: Perquisites: Benefits: high low low low high

Small, start-up, dotcom

Base: Incentive: Long term: Perquisites: Benefits: mod mod high low low

Consequences of More
More of one thing does not solve problem Balance of rewards is important Key words
Meaningful Relevant Timely Valuable

Examples

There is no silver bullet!