Compensation Strategies

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Compensation Strategies

• Not Having a Plan Could Break the Bank
• Presented by
• James C. Fox

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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

3
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

4
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?

5
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

6
Pay with what?

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

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Pay with what?

• Indirect Financial
• Benefits
• Non cash recognition
• Perquisites

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Pay with what?

• Affiliation
• Organizational support
• Work environment
• Organization citizenship
• Title

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Pay with what?

• Work content
• Variety
• Challenge
• Autonomy
• Meaningfulness
• Feedback

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Pay with what?

• Career
• Advancement
• Personal Growth
• Training
• Employment security

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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

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Examples

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

• Small, start up, dot-com
• Highly competitive market for talent
• Other companies raid employees
• Non-union

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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

14
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

15
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

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Incentive Pay

• Balanced Scorecard Approach
• Financial
• Operational
• Customer
• Learning and growth
• Multiple levels of organization
• Corporate
• Division
• Business unit
• Individual

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Incentive Pay Targets

• Top Executives 50-100 of base
• VPs and Directors 30-50 of base
• Mid-Management 20-30 of base
• Supervisors 10-20 of base
• Others 0-10 of base
• Needs to be at least 5 of base to have an impact.

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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)

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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)

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Long Term Pay
Level Grant value Est. Future value
Executive 60-100 30
Director 50-70 25
Manager 30-50 20
As a percent of base
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The Balance
Pay Component Starting Market Growth Mature Declining
Base Low Mod High High
Incentive Low Mod High Mod
Long term High High Mod Low
Perquisites Low Mod Mod High
Benefits Low Low Mod High
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The Balance

• Large government contractor
• Base high
• Incentive low
• Long term low
• Perquisites low
• Benefits high

• Small, start-up, dot-com
• Base mod
• Incentive mod
• Long term high
• Perquisites low
• Benefits low

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Consequences of More

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

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There is no silver bullet!