Times are changing. Let’s face it. This employment market isn’t what it use to be. A few years ago, employers enjoyed being choosy regarding available candidates. “They don’t pass all 10 of our skill requirements–don’t hire ‘em. Employee turnover–not a problem. How can our employees afford to leave? Our competition isn’t hiring either.”
Not any more. This market has turned in the employee’s favor. Small and medium size companies are growing quickly and having difficulty finding quality personnel. Larger organizations are starting those major projects that had been shelved for the past few years. My phone rings daily with clients in need of resources. Recruiters are becoming more selective in the searches they perform. Candidates are asking for more enticing “value packages.” (See the Top 12 Happiness Factors for Employees.) These are all very good signs for people, companies, and the economy, so it’s time to look at compensation to see if it’s all it’s cracked up to be.
The answer to the compensation question isn’t an easy one, but the fact remains that it’s an important element in the overall picture for employees.
What’s an employer to do?
So how do you make sure your employees are happy and that you attract the best resources in the market? Money. Alright, that might be an exaggeration. There are several components to a company’s “value package” that aren’t financially related (e.g., responsibility, flexibility, training, growth opportunities). However, one of the most important criteria individuals place on whether they are happy with their job is their compensation plan. This does not necessarily mean people feel they need to make lots and lots of money. In fact, most people I’ve interviewed indicated they’re more concerned with the fairness of their compensation plans than the amount of money they earn.
Many companies are currently evaluating their compensation plans to determine whether their programs are fair and enticing. Last quarter, milewalk helped two organizations evaluate and restructure their compensation programs to keep their employees happy and entice new candidates. It’s insufficient simply to incent good performance. Incentives need to be aligned with corporate goals so they can help shape employee behavior. Compensation programs can be tailored to do this.
Key Considerations: The CORE traits
There are many quality compensation techniques. Regardless of which ones you deploy, they should ensure employees easily understand how they are compensated (i.e., no “trust me” bonuses), where they should focus their energy (especially important for sales resources), and which initiatives are top priority (management by objectives). Below are some universal traits found in successful compensation plans. These hold true irrespective of the employee’s level or compensation amount. I’ve coined them CORE traits.
Clarity. Every employee should understand how she is compensated. There should be no ghost formulas that produce a “magical number.”
Ownership. All employees should feel like an owner. It doesn’t matter whether the company size is five or 50,000 people or whether the company is public or private. There are appropriate techniques such as stock options, employee stock purchase plans, phantom stock distributions, and various profit sharing programs that can be implemented.
Reward. There should be a clear disparity between the amount of pay top performers receive relative to below average performers. Otherwise, why should the top performers work harder and take on more responsibility. Personal satisfaction goes a long way, but it does wane. Another company is always ready to lure your most talented and hardest working employees.
Essentials. Regardless of level, every employee should receive a blend of fixed and bonus pay. The best organizations also include some type of profit sharing even at the lower levels. The fixed pay (i.e., salary) includes the “good citizen pay” and covers the daily duties. The bonus should account for extracurricular and higher level of performance activity. At managerial, director, and executive levels, companies can also introduce management by objective (MBO) techniques to address the bonus portion. For resources such as sales executives, account managers, and other analogous resources, organizations should include commission-based plans.
Below are some examples of high-level MBOs that can be assessed for key departments within a company. They are generic and merely a few examples. They should be tailored appropriately based on your company type.
Recruiting. Quality of Hire, Attrition Rate, Employee Performance, Cost per Hire.
Human Resources. Employee Satisfaction, Voluntary Turnover, Career Development,Company Communication.
Marketing. Brand Awareness, Campaign Effectiveness, Prospect to Lead Conversion,Inbound Calls, Revenue.
Sales. Revenue, Net Income, Proposal Win Ratio.
Customer Service. Customer Satisfaction.
Finance. Net Income, Expense Management, Days Sales Outstanding.
Another article that might be of interest related to securing your job candidates is Do Candidates Reject You? The Lost Art of Extending a Job Offer.