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Keys to a Successful Partnership with Finance

Keys to a Successful Partnership with Finance

To be successful in any job or sport, there is always a key partnership that is critical and most important.  In baseball, it’s the pitcher and catcher. In American football, it is the quarterback and center.  In Compensation, the relationship and partnership with Finance is essential.  In all three examples, each individual and organization has to be in sync with the other to avoid fumbles, passed balls, and missed opportunities.

For over 30 years I have had the pleasure of working with some fantastic Finance partners. When thinking about what made the partnerships great, four (4) common themes were always there.

There Was Trust

In every situation, we knew we each had the best of intentions and that we would have “each other’s back”.  We would make sure no one was surprised and that we were both prepared and showed-up well to meetings especially with senior leadership.

Tough Conversations Were Held Behind Closed Doors

As in any partnership, both parties want the best outcome.  To do this, it is essential to have tough conversations in a way that is safe.  Only by having those open and honest conversations can you understand each other’s perspective and get to the best answer.  As in any good personal relationship, it’s best to have those conversations behind closed doors so both parties feel safe and secure.

We Agreed to Disagree

We always desired to be aligned in the recommendation; however, that didn’t always happen.  In those times, we agreed to disagree. We believed everyone had valid points and the best answer was a matter of perspective or desired outcome. Fortunately, this did not happen often but when it did, we took all of the information to senior management and presented both sides equally sharing our perspectives.  This approach allowed each of us to be heard and management to make an informed decision.

We Validated the Math & Models

A good portion of what a compensation professional does involves math and models. And, when designing programs for large groups of employees, the numbers start getting pretty big and can impact the bottom-line.  Don’t keep your models secret and instead share your models with Finance and have them validate your methodology, assumptions, and results. When meeting with the CFO, CEO or the Compensation Committee, it is great to have everyone giving a thumbs up on the analysis and results.

To win a baseball or football game takes time and practice.  Building a great partnership also takes time and you have to be intentional about it.  Reach out and get to the know your partner personally as well as professionally.  Not only will the partnership be great and help both of you be successful, you might just find that you made a really good friend as well.

To read other blogs, go here: https://alliancecompensation.com/blog/

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/


David Adent is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 30 years of experience in corporate and executive compensation roles, and lives with his wife in Spokane, WA.

To be successful in any job or sport, there is always a key partnership that is critical and most important. In Compensation, the relationship and partnership with Finance is essential.

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Best Laid (Delayed?) Plans

Best Laid (Delayed?) Plans

You are a well-respected, knowledgeable, and smart compensation/rewards professional, with a lot of success behind you.  You’ve just put together one of the best pieces of work that is sure to be a “game-changer” (to use an over-worked phrase) for your company.  You have the time booked with the CEO.  And you walk out rejected and dejected.

I’ve worked for a lot of great companies over my career – Portland, Phoenix, Bay Area — but not always for people that had the greatest insight into rewards and compensation.  Sometimes that’s the HR leader, but more frequently it’s the CEO, or as I affectionately call him/her, the Chief Compensation Officer (CCO).  That means instead of meaningful answers on key questions and great ideas, you get responses like:

  • Gobble-de-gook:            “We need incentive programs that will enable us to save on expenses, not pay outsiders.” (Huh?)
  • Ostrich:                            “I don’t hear a whole lot of negative feedback, things must be working.”
  • Black or White:               “Turnover isn’t a problem so compensation must be OK.”
  • 4th and long (punt):        “The Executive Committee needs to decide on our funding priorities.”

Or here’s where you really know things are going sideways: “This would look better it the line was green instead of yellow.” (Play sound of your hair ripping out.)

Thus the subject of this blog post.  I’ve just experienced something like that again, but this time indirectly as a potential client in Seattle was unable to move ahead because the CEO didn’t want to make the changes to the compensation plan… that he had designed… and gave him the ability to change all the decisions made by managers…

So Now What?

As an external consultant, you can say “OK then,” and move on to the next opportunity.  But what if you are working for the CCO?  There are still things you can do that continue to advance great ideas and strategies.  Here are some specific steps you can still take that while not optimal for your original compensation plans could at least help to prepare for a time when you get the go-ahead to move forward.

  1. For incentive and equity plans, review your plan documents.  Look at those specific areas where you’ve observed some friction or perhaps where errors exist.  For example, does your commission plan describe credit splits as 50/50 while Sales Operations is paying 100/100?  Do you have new pay grades eligible for the company bonus plan, but haven’t updated the appendix where eligible grades are listed?  Go after those areas that may only affect a small portion of your population but could cause a big headache when challenged.  Use data to prove the need – best reply to a Black or White or an Ostrich.
  2. Spend some quality time with finance.  It’s fine to try to engage with finance on the fly during a design project, but so much easier to have already established roles and responsibilities, and in some cases, educating on design principles and such when there’s no pressure or deadlines involved.  And when you have a finance ally with you next time with the CCO it could be a different result.
  3. Invest some time in looking at all your labor cost data, not just the incentive or bonus element.  Most CFO’s are willing to discuss if the company pays out cash in fixed or variable form, but they really care about the total going out the door.  When you look at things like employee distributions in grades, management spans and the like, you start to uncover elements of total labor costs that may help fund future variable pay programs for the broader workforce or add a penny or two to EPS.  Taking the CCO additional business metrics they may never have seen before could jump start a decision.
  4. Poke at your administrative processes and payment mechanism.  If you’re lucky you have this well in hand, but most of us have opportunity here either to re-ask why we do things a certain way, whether we are compliant with our own pay policies, and if plan payouts are being calculated and paid correctly.  For example, if your sales incentive plan is supposed to pay incentives against a year-to-date quota, is that really happening, or is there a spreadsheet error somewhere paying every month independently? Nothing derails a CCO conversation faster than sending you to the woodshed for poor execution of a current program.
  5. Test different approaches and ideas.  Sometimes the best socialization approach with a CCO is a slow drip of the concepts rather than quick change.  This works especially well when you can run your idea in parallel to the current plan and show any differences.  One of the best approaches to slow decision makers in my experience.
  6. To take #5 a little further, ask to run a pilot.  That may not be something you are used to doing, but why not gather the experience in real time before taking something live for everyone?  It may even create a little “buzz” in the rest of the work force.  This happened to me once with a large hi-tech company in Santa Clara. Executive support existed for a change in our employee recognition program globally, but IT and HR leaders couldn’t figure out how to support it.  A brave HR leader of a large organization volunteered to run a pilot in part because she saw the opportunity to make significant inroads for employee engagement and greater simplification of existing programs.  It was a tremendous success and we had other organizations clamoring to get in, creating the “pull” needed to overcome the barriers.  And it proved to the CCO that it was not just some hair-brained idea.

Always Remember…

I have an axiom I’ve followed for many years in compensation and the business world in general.  You may have seen this written in different ways, but it basically goes like this:

“There is nothing more difficult to take in hand, more perilous to conduct, than to take the lead in the introduction of things, because the innovation has for enemies all those who have done well under the old conditions and lukewarm defenders in those who may do well under the new.”

Remember, it probably isn’t personal – so once you get past the surprise, find a productive way to move ahead.

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Jim Harvey is a Managing Partner with Alliance Compensation LLC (www.alliancecompensation.com) , a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 35 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR.

You are a well-respected, knowledgeable, and smart compensation/rewards professional, with a lot of success behind you.  You’ve just put together one of the best pieces of work that is sure to be a “game-changer” (to use an over-worked phrase) for your company.  You have the time booked with the CEO.  And you walk out rejected […]

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Increase Your Impact, When to Hire an Expert

Increase Your Impact, When to Hire an Expert

If you are like me, you like to do things yourself. I generally know how long things will take and I like the satisfaction of saying “I did it”.  But there are times when I pause and ask myself does it make sense for me to do this. This is especially true when there is a lot on my plate, and I must choose between working on projects or on a relatively simple but urgent request.

For me personally, I really dislike plumbing and I’m not good at it. No matter what I do I seem to struggle to squeeze into those little spaces and feel like I am going to break my arm. And there always seems to be a leak when I’m done. So, even though I don’t like to spend the money on plumbing, for me an expert is always the way to go!

At your company, there are several situations where it makes sense to go with an expert including:

  1. You do not have someone on your team with the knowledge or experience,
  2. When you are dealing with issues that impact a very sensitive employee group or a lot of employees where it is critical to get it right,
  3. When you need or have to improve credibility with stakeholders including management or employees,
  4. There are special laws that need to be considered and you just don’t deal with them on a regular basis,
  5. You have team members who are on leave or vacation, and of course,
  6. Your team is already at or beyond capacity and you do not need or want to hire someone but you just could use the extra hands.

When thinking about executive compensation, it makes sense to get help from an expert when hiring executive officers. There are a lot of factors to consider in this situation including internal equity, employee perceptions for publicly disclosed compensation information, the Compensation Committee, the Board of Directors, and how your investors and shareholder advisory groups will view the situation. Making a mistake here can create headaches for you when it comes time to seek shareholder approval of your executive compensation practices or proposals.

When you do decide to hire an expert, remember, their help can take many forms.

Extension of Your Team

We all know that during the year, there are times when there is more work than our teams can handle. Also, our staff will take vacations or go on family medical leave. Consider hiring a partner who can act as an extension of your team with dedicated hours to do what you need done for a period of time or just be available when you need help. Your partner can help with critical projects or the day-to-day work (e.g., market pricing or job offers) so you can focus on other priorities.

Complete Creation

In this situation the experts will create the design, or fine tune yours, and then create everything that supports rolling out the design including presentations, communications, and plan documents. This approach is great when you do not have the expertise OR bandwidth for the project.

Co-Author Work In Partnership

This is a great idea when you want to be involved in the work while getting expert help. Your company can learn a lot using this approach.  Remember, this also creates a situation where you are partners and have an equal stake in the results. I was fortunate to partner and co-present with Jeremy Erickson of Pillsbury Winthrop Shaw Pittman LLP and Jon Burg of Infinite Equity on the impact of the CEO Pay Ratio requirements at a Global Equity Organization conference. Partnering with Jeremy and Jon provided the opportunity to gain expertise and directly apply it in a business setting.

Plan/Content Review

External viewpoints can be very helpful when making sure your proposed designs, plans, programs and/or content are designed and communicated well. External advisors typically look at things differently since they have exposure to multiple companies and designs. You will most likely appreciate their insights and suggested improvements. And, it provides you the ability to say an expert agrees with your approach.

Doing projects yourself is very satisfying; however, there are times when hiring an expert is the right choice especially when you use a model that works well for you and your company.  Each project and situation is different; trust your judgement on when to “jump in the pool” and hire someone.  For me, hiring a plumber is always the right thing to do!

To read other blogs, go here: https://alliancecompensation.com/blog/

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/


David Adent is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 30 years of experience in corporate and executive compensation roles, and lives with his wife in Spokane, WA.

Doing projects yourself is very satisfying; however, there are times when hiring an expert is the right choice especially when you use a model that works well for you and your company.

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Follow The Leader

Follow The Leader

When I first thought about this idea — that a lot of what we do in the compensation world is to follow the leader — it was the children’s game that came to mind.  Remember – if I’m the leader and I skip in a circle, you do to; if I put my right-hand pinkie finger in my ear, you do too.  Sort of a cousin of Simon Says.

Then my mind went to what really happens when we play follow the leader in compensation.  Maybe some or all of this has been on your watch:

  • We let market data dictate what “we believe” jobs are worth and how employees are paid
  • We design incentives based on how our competitors do it, or how the VP did it at her last company
  • We enable management’s somewhat mistaken belief that benchmarking is the only valid approach to program design

When we play Follow the Leader, we handicap our creativity to align our reward programs and systems to our unique business philosophy, strategy, objectives and values.

It’s not my intention to totally scrap the idea that we can learn from others.  Some of the best learnings I’ve had in my career have been from people that have faced challenges and found unique solutions that worked.  For years I kept paper copies of presentations I had attended at conferences, industry meetings, consultant presentations, etc.  And I did go back over them to pull out ideas, but I didn’t take that material and just paste my current company logo in the upper left corner.  It did help though to add elements to programs that would fit the needs of the problem I was trying to solve.  For example, should a bonus program have a payout threshold?  Should a vesting component be used?  These are ways to put real value into company bonus, sales incentive and executive compensation plan designs.

There are other aspects of benchmarking that I am solidly behind (especially when it reinforces my own beliefs!).  Of course, many pay programs are benchmarked to a local market – Seattle, Los Angeles, Phoenix, you name the location and that’s probably right when it comes to certain jobs and levels of pay, for example non-exempt work.  And for example, I see pay practice surveys that show the quantitative metrics participants use in their broad-based bonus plans and the prevalence of that.  (I’d bet right now that not many readers of this know what EVA is, but I worked in a company once where it was the primary metric in the employee bonus plan).  I could easily show how it simply wasn’t appropriate for the level of employee that needed to understand it, but it took an executive departure before we could wrestle that one down.

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(By the way, bonus points if you know the answer to this related quiz question.  What are the two most common quantitative metrics that companies use for their bonus programs?)

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You might be living under a rock if you’ve never heard (herd?) of Herd Immunity.  One of the more common applications of the compensation ‘herd mentality’ is on market pricing of jobs.  If you are an old-timer like me, you probably know that at one time, job evaluation systems like point factor, classification or factor comparison systems were more prevalent than market pricing.  And if you haven’t taken C2 (the job evaluation class) from WorldatWork, you may never have heard of those.  But much more so than market pricing, they enabled companies to determine how to pay their employees when they selected what was important to them rather than letting the market do it for them.

I still tell my clients that “the market is… interesting… but don’t let it tell you what to do.”  What I mean by that is this: Follow the Leader isn’t always your best choice.  And as a trusted advisor in your company, take heed that if you are going to play that game then you know what you’ve signed up for.

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Quiz Answer: Revenue and Profitability

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Jim Harvey is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 40 years of experience in corporate leadership roles and consulting, and lives with his wife and four dogs in Sherwood, OR.

To read other blogs, go here: https://alliancecompensation.com/blog/

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/

When I first thought about this idea — that a lot of what we do in the compensation world is to follow the leader — it was the children’s game that came to mind.  Remember – if I’m the leader and I skip in a circle, you do to; if I put my right-hand pinkie […]

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2021 Compensation & Benefit Limits

2021 Compensation & Benefit Limits

As we bring in the new year, we should keep in mind a few changes with respect to the 2021 Compensation and Benefit limits.

401(k) Plan Limits

Employee 401(k) contributions for plan year 2021 will once again top off at $19,500 with an additional $6,500 “catch-up” contribution allowed for those turning age 50 or older. But maximum contributions from all sources (employer and employee combined) will rise by $1,000.

For employee contributions to 401(k)-type plans, the news is “no changes” for 2021, whereas last year saw a $500 jump in the overall employee contribution limit for 2020 plus a $500 rise in the catch-up limit. The annual defined contribution limit from all sources increases from $57,000 to $58,000 (plus the $6,000 catch-up if age 50 or older), or 100 percent of an employee’s compensation.

The annual ceiling on employee compensation that can be used to calculate employee deferral and employer matching contributions also is increasing to $290,000 from $285,000.

The limit used to define a highly compensated employee for nondiscrimination testing remains at $130,000, as well as the dollar limit for defining key employees in a top-heavy plan remains at $185,000.

Health Savings Account and High-Deductible Health Plan Limits

For 2021, the IRS announced an increase in health savings account (HSA) contribution limits. An individual with coverage under a qualifying high-deductible health plan (deductible not less than $1,400) can contribute up to $3,600 — up $50 from 2020 — for the year to their HSA. The maximum out-of-pocket has been capped at $7,000.

An individual with family coverage under a qualifying high-deductible health plan (deductible not less than $2,800) can contribute up to $7,200 — up $100 from 2020 — for the year. The maximum out-of-pocket has been capped at $14,000.

The $1,000 catch up contribution available to accountholders aged 55 and over is not tied to a cost of living adjustment and thus, remains at $1,000.

Social Security & Medicare Rates & Limits

President-elect Joe Biden, according to the tax plan he released before the election, may enact of number of policies that would raise taxes on individuals with income above $400,000, including raising individual income, capital gains, and payroll taxes. The details of Biden’s tax plan are still being finalized.

For earnings in 2021, the maximum taxable earnings limit is increasing to $142,800 from $137,700. 

The OASDI tax rate for wages paid in 2021 is set by statute at 6.2 percent for employees and employers, each. Thus, an individual with wages equal to or larger than $142,800 would contribute $8,853.60 to the OASDI program in 2021, and his or her employer would contribute the same amount. The OASDI tax rate for self-employment income in 2021 is 12.4 percent.

For Medicare’s Hospital Insurance (HI) program, the tax rates are 1.45 percent for employees and employers, each, and 2.90 percent for self-employed persons.

For a summary of these changes, please refer to the table below.

Nancy Ellington is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. She has over 30 years of experience in corporate leadership roles and consulting, and lives with her husband and two kids in Redmond, WA.

As we bring in the new year, we should keep in mind a few changes with respect to the 2021 Compensation and Benefit limits. 401(k) Plan Limits Employee 401(k) contributions for plan year 2021 will once again top off at $19,500 with an additional $6,500 “catch-up” contribution allowed for those turning age 50 or older. […]

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Avoiding the Holiday Gift Trap

Avoiding the Holiday Gift Trap

We have all heard stories where a friend or family member received a holiday ham or turkey as a company holiday gift. I don’t know about you but when I first heard about these gifts I was surprised.  These types of company holiday gifts or gratuities will frequently have mixed success but hopefully they are appreciated for their intended gesture.

I was curious what types of holiday gifts are popular in 2020 and according to Connie Chen of Business Insider, these are her top 5 corporate holiday gifts:

  1. A low-maintenance plant to brighten up a desk
  2. A tumbler that keeps nearly any drink at its ideal temperature
  3. A candle that’s particularly giftable
  4. A reusable bag fit for errands
  5. A journal that’s meant for developing ideas.

If you are thinking about what holiday gift or gratuity to provide your employees or co-workers, here are some things you should consider:

  • How to make the recipient feel valued and appreciated and they were not an “after-thought”.  If your gift is being sent from Seattle to Denver and you send it on December 24, chances are it might not have the same effect as if it was received a week earlier.
  • Your relationship with the recipient. Workplace relationships can range from acquaintances to very good friends and even relatives. Make sure your gift shows them they are valued but do not get too personal or you might make them or others in the office uncomfortable.  For example, perfume or cologne is probably not a good idea.
  • What are their interests? It is best to give something they will appreciate, use and remember. A co-worker once gave me a 24-inch-tall Christmas Minion plush toy and I LOVE IT.  Each year it is displayed with our Christmas decorations and it always gets a lot of discussion with guests.
  • How to provide the gift not expecting anything in return. Remember, a gift is not an incentive.
  • How to recognize the recipient knowing not everyone celebrates the holidays in the same way or at all.  Staying away from specific themes can help you avoid this pitfall.

When considering gifts to current or potential customers, be aware of:

  • Company policies. Some companies have very strict policies and you will want to make sure you follow them.
  • Cultural norms.  If you work in a global company it is important to understand the cultural aspects of gift giving and receiving to avoid problems. 
  • Gift Value.  It is best to provide something with a nominal value so you do not inadvertently create pressure to buy your goods/services or become a client. Of course, you also do not want the gift to be mis-interpreted as a bribe.  One very large company I know in Santa Clara even calls this out in their sales incentive plan policies.

Lastly, do not forget to consider the potential tax implications of giving a holiday gift.  Depending on the situation, the Internal Revenue Service (IRS) might consider the value of the gift as taxable income and therefore taxes have to be paid by the company and possibly the employee.  If you are personally providing a gift to an employee(s) and the company is not paying for it, then you probably do not have anything to worry about. However, if the company is paying for and providing a gift, you need to think about it. If you give a gift card with more than a de minimis value then the IRS might consider it income and it needs to be recorded as such. Being conservative might be the best action.

Giving holiday gifts can be a great experience that has a positive effect on the relationship with the recipients.  If done well, it can result in deeper relationships which could turn into lasting friendships. If you choose to provide gifts, try to: have fun with it, be creative, and provide something you believe the recipient will enjoy and value.

To read other blogs, go here: https://alliancecompensation.com/blog/

To see our Linked-In company page, go here: https://www.linkedin.com/company/alliance-compensation-llc/about/

_____________________________________________________________________________________________________________________

David Adent is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 30 years of experience in corporate and executive compensation roles, and lives with his wife in Spokane, WA.

We have all heard stories where a friend or family member received a holiday ham or turkey as a company holiday gift. I don’t know about you but when I first heard about these gifts I was surprised.  These types of company holiday gifts or gratuities will frequently have mixed success but hopefully they are […]

Read More
 

Top 5 Employee Retention Strategies in 2021

Top 5 Employee Retention Strategies in 2021

Employee retention is one of the greatest challenges facing employers today. Companies faced with a high turnover rate lose tribal company knowledge, as well as training time and investment.  They may also have to undergo a costly candidate search. A high employee turnover rate can cost twice an employee’s salary to find and train a replacement.

As a compensation professional, I often received requests from managers to put together a retention package. While throwing money at the problem may solve the immediate retention concern, it does not solve the underlying reason why employees choose to leave a company in the first place. It’s important to take the time to learn the reasons for employee departures.

Top Reasons Employees Leave 

  • Manager. Employees leave managers since they feel unappreciated, have lack of clarity about expectations, and/or do not believe there is a framework within which they can succeed.
  • Lack of Opportunity for Advancement. Advancement doesn’t necessarily mean promotion. Employees want personal and professional growth opportunities.
  • Lack of Work-Life Balance. Workers from Generations X, Y and Z will continue to insist on having more time outside of work to live their lives.
  • Unable to Speak Freely. Employees want to contribute new ideas. If they feel they must bite their tongues or find themselves constantly in trouble, they will find another company where they can express themselves.

After learning the reasons for employee departures at your firm, you’ll be armed with data to help form a comprehensive employee retention strategy.

Top 5 Employee Retention Strategies

  1. Hire the Right People. Invest time upfront to find the right match between candidates and your organization and team. Besides technical knowledge, make sure the candidate fits with and compliments other team members.
  2. Ensure the Compensation & Benefits Package is Market Competitive. While many employees cite career development and other factors higher than pay on importance, a market competitive compensation and benefits package still counts.
  3. Ask Employees What Motivates Them. Employees are motivated by different things. Don’t assume a one-size-fits-all approach will work for the whole team. Ask your employees what gets them excited about their job and what aspirations they may have. Find opportunities where they can get involved in these areas.
  4. Listen. Ask your employees on a regular basis how they’re doing and what suggestions or feedback they may have. Most of all – LISTEN! This is very hard for many managers to do. As the old saying goes: “two heads are better than one.”
  5. Empower Employees to do their Best. Provide the leadership, resources, and training for them to realize their potential.

It’s time companies’ shift from “reactive retention” to “proactive engagement”. It’s much easier – and less expensive — to retain employees who are engaged and committed to your company’s success.

Nancy Ellington is a Managing Partner with Alliance Compensation LLC, a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. She has over 30 years of experience in corporate leadership roles and consulting, and lives with her husband and two kids in Redmond, WA.

Employee retention is one of the greatest challenges facing employers today. Companies faced with a high turnover rate lose tribal company knowledge, as well as training time and investment.  They may also have to undergo a costly candidate search. A high employee turnover rate can cost twice an employee’s salary to find and train a […]

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New Year’s Resolution (Early Edition)

New Year’s Resolution (Early Edition)

Is it ever too early to start thinking about the New Year?  Especially after the year we’ve had (2020!)??  In most cases, I’d probably say yes, September is way too early. But this time, I’m looking forward to a New Year.

And with the thought of a New Year, who doesn’t start thinking about New Year’s resolutions?  A resolution (loosely defined here for my purposes) is something we think could make change for the positive, something we’ve always been meaning to do but never quite got around to.  A report I read said these were the top 10 New Year’s resolutions for 2020:

  1. Actually doing my New Year’s resolution
  2. Trying something new
  3. Eat more of my favorite foods
  4. Lose weight/diet
  5. Go to the gym
  6. Be happier/better mental health
  7. Be more healthy
  8. Be a better person
  9. Upgrade my technology
  10. Staying motivated

It’s the same list most every year, although I’d hazard a guess that the list might look a little different after having survived 2020.  Might even mention toilet paper.

What about your work resolutions?  If you are a compensation professional, resolutions for work should always include basic yet important resolutions to continue to learn and grow in the profession.  And then there is the ongoing list (referring back to my definition of resolution) of things we’ve been meaning to do but just never got around to.

Here is my HR/Compensation New Year’s Resolution list for 2021, and just maybe a few things that might apply to the end of 2020 as well.

  1. Focus on ways to make good programs even better.

This may include short- and long-term incentive plan designs, but if your programs are already working as planned then consider how effectively are they communicated – are you getting credit with your employees for what you offer?

Secondly, can your average manager effectively communicate Total Rewards?  If they haven’t been trained, would you expect them to be able to just because they are good at engineering or marketing?

  1. Pay attention to the changing legal and social landscape.

Pay equity is an evolving topic and worthy of your time, attention and priority.  Although all states don’t have pay equity laws yet, all it would take would be a majority vote in your legislature and a like-thinking governor to get your attention.  I speak from experience.

  1. Benchmark something.

A pretty generic statement, but when was the last time you checked to see how competitive your shift-pay differential was?  What percentage of employees can be rated in the top category?  If your pay structures were competitive?  The list is long.

  1. Use Total Rewards statements.

Who of us hasn’t thought about trying to convince employees they are well-compensated, especially in the “hidden paycheck?”  Takes a pretty good data base and good internal and external partnerships though.  You’ll never get it done unless you start asking those partners what their capabilities might be.  And planning, planning, planning.

  1. Get more involved in sales compensation plans.

Sales compensation can be a mystery if you’ve never been involved or immersed in it before.  Might this be a good time – thinking about the new year – to offer to be involved?  If you aren’t confident to take it on you can at least offer market data and be a part of the team.  Sales executives actually value your market data, especially when trying to understand how to pay their best performers.

  1. Write Job Descriptions.

Really?  Job descriptions?  Isn’t that last on everyone’s list – ever?  Just because we don’t enjoy the work doesn’t mean there isn’t value in it though.  Ask anyone who has had to match jobs in salary surveys, write recruitment ads, defend lawsuits, etc. (Besides, it will improve your creative writing skills which you will use throughout your career.)

  1. Write or review policies and processes.

Policies don’t write themselves, unless there are no policies (wow, that was profound).  A policy should be a statement of your intent when it comes to something, plus some explanation.  For example, how do sales people get paid when they are on a LOA.  Usually involves some internal discussion/debate to figure it out, but then you can execute consistently.

Processes are a little different in my mind, generally speaking to benefit you or your team to be able to replicate an approach, an analysis or such.  For example, how is market pricing done – weighting of surveys, how to match blended jobs, etc. 

In my experience, larger companies can generally get these sorts of resolutions knocked out because they have larger staffs that might be able to team up and knock something out.  Medium and smaller companies may be not – maybe you need a hand to take that new ground this year, check that resolution off the list for good.  So try something new — we at Alliance Compensation can help with your list. We have the experience, expertise, and work with excellence to get you your desired results.

And best of all, you don’t have to diet OR go to the gym!

——————–

Jim Harvey is a Managing Partner with Alliance Compensation LLC (www.alliancecompensation.com) , a team of seasoned experts and a trusted solution for clients across the Western US in public and private companies. He has over 35 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR.

Is it ever too early to start thinking about the New Year?  Especially after the year we’ve had (2020!)??  In most cases, I’d probably say yes, September is way too early. But this time, I’m looking forward to a New Year. And with the thought of a New Year, who doesn’t start thinking about New […]

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Big, Hairy, Audacious Compensation

Big, Hairy, Audacious Compensation

A while back (1994 to be exact) a term called a BHAG (Big, Hairy, Audacious Goal) was coined.  Think Boeing in Seattle getting into the jet airliner business as an example.

What do you think the compensation plan was like for Boeing executives and engineers?  Do you think it matched the size, scope and impact of their goal – and accomplishment?

Probably not.  And probably never really entered the mind of those, or most rewards designers since.  Isn’t it time to re-think what rewards should look like when someone really and truly “hits one out of the park?”  I’d say so.  It’s not going to be about what the surveys say, or what percentile you decide to pay at.  It should be differentiation on a scale beyond all those things.

Some might continue to point to their existing plans and programs and say, “That’s what our recognition plan is for,” or “That would be covered in our annual incentive plan,” or “But then they’d make more than the CEO,” or even “We’ve never done it that way before.”

(That last one makes me shudder.)

I recently worked with a client, a small but fast-growing software firm with offices in Silicon Valley and Portland that is making big inroads into data storage and management.  The path to success is clear – create growth and you create value, and being able to do that without outside financing creates exponential value.  Wouldn’t we all agree that creating exponential value would be worth exponential rewards?  Now not something unreasonable, but it has to be impactful.

In my client’s case (software as a service) we discussed the real drivers of value in that SaaS space where they play  – long-term contracts, pre-paid business and attracting logo business.  Other industries will of course have other value drivers that are specific to their type of business, competitiveness, and where they are on the business cycle (start-up, growth, maturity or decline).  Now here’s the thing about rewards under the BHAC thinking.  The amounts can’t scare you, no matter your industry or experience.  They are, by design, BIG AND SCARY (and of course, hairy but that’s not something I’m going to blog about)!

What might a $2M, 2-year contract be worth under a regular commission plan?  5%?  So $10,000, and if structured like most plans, pay that out over the life of the contract.  $416.67 a month – THAT’s exciting!!

This isn’t necessarily intended to just get you thinking about sales incentives though.  And as I said earlier, it isn’t going to help if you get caught up in percentiles.  A BHAC plan is about VALUE.  Who would look back 2 years after landing a logo client in Los Angeles that doubles your revenue and increases your market value by $5M and say, “Gee, it was probably a mistake to pay Colleen that $50,000 bonus, don’t you think?”

Let’s pivot to a favorite value creator, product designers.  Could be software engineers in Santa Clara or apparel designers in Beaverton.  I may be wrong, but from my experience, those roles typically come with a caveat on who owns what, i.e., intellectual property.  One company I worked for years ago had a very talented stable of design engineers who over the years created product after product that were patented.  Their reward?  A nice plaque, an original copy of the patent with their name, maybe a promotion, maybe a few percentage point increase in their merit increase that year.  If the company also did well that year, maybe a somewhat larger bonus (say 20% instead of 15%).  Again, how exciting is that?!

We do need to be a little careful though, BHAC isn’t necessarily for everyone.  Some occupations (engineering being one) attract the type of person who may get enormous satisfaction just from the accomplishment.  Some cultures (no matter what the occupation) have a much stronger aversion to individual recognition than others.  Still, it can’t hurt to think bigger than where the data usually lands, right?

——

Jim Harvey is a Managing Partner with Alliance Compensation LLC (www.alliancecompensation.com) , a team of seasoned experts and trusted solution for clients across the Western US in public and private companies. He has over 35 years of experience in corporate leadership roles and consulting, and lives with his wife and three dogs in Sherwood, OR.

A while back (1994 to be exact) a term called a BHAG (Big, Hairy, Audacious Goal) was coined.  Think Boeing in Seattle getting into the jet airliner business as an example. What do you think the compensation plan was like for Boeing executives and engineers?  Do you think it matched the size, scope and impact […]

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Announcing Alliance Compensation

Announcing Alliance Compensation

On June 15, 2020, two great firms and three great consultants will be joining forces in a new business venture. Announcing Alliance Compensation!

Columbia Compensation Consulting Inc. and Compass Total Rewards LLC will be merging. Principals Jim Harvey and Nancy Ellington are being joined by David Adent, most recently of Cisco Systems. Jim, Nancy, and David all met while working together in senior compensation leadership roles at Cisco.

Columbia Compensation and Compass Total Rewards have served local, regional, national, and global clients across the spectrum of compensation and rewards strategy, design, and advisory services. They’ve built a reputation for experience, excellence, and expertise. David is a natural fit to the new firm with his extensive background in executive and board consultation and broad industry experience. Alliance Compensation already has clients in the Western United States including Washington, Oregon, California, Utah, and Arizona. They’ll also serve Idaho, Montana and Nevada.

As friends and colleagues, they believe now is the time to form their Alliance given their successes in their own businesses as well as combining their collective knowledge, experience, and expertise to serve their existing clients, and form new relationships. Most of their new business comes through their current client’s referrals, something they’ll continue to value and strive to live up to as they move forward.

There will not be any disruption in any services that clients have relied on; as a matter of fact, their Alliance should increase their availability. Their focus has been and remains serving the broad spectrum of compensation, rewards, and incentives from the basic blocking and tackling of market pricing and salary structures to the highly specialized and specific aspects of executive and sales compensation. And you’ll still be able to work with your existing partner, although you may want to meet the whole team along the way – they’re putting their heads together behind the scenes to make sure their products and services are everything you expect and more.

For existing clients, your continued support and partnership are greatly appreciated. For new clients, the Alliance Compensation team looks forward to meeting you and learning about your compensation needs.

For more details about the Alliance Compensation team and service offerings, visit their website or contact them directly at 425.836.0206 / 888.877.4746.

You may contact Nancy at nancy@alliancecompensation.com, Jim at jim@alliancecompensation.com or David at david@alliancecompensation.com.

Announcing Alliance Compensation! Columbia Compensation Consulting Inc. and Compass Total Rewards LLC will be merging

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Is Sales Compensation Coming From The Battery Drawer?

Is Sales Compensation Coming From The Battery Drawer?

My mouse started acting up the other day. That usually means the batteries are wearing out, so I headed over to the battery drawer for new batteries.

What a mess. Lots of batteries, finding a fit wasn’t the problem. I just had no idea if any of them were any good. So I did what was necessary, which was try all the various combinations of those batteries until I got something like the performance I needed to make the mouse run again. But at this rate I have no idea how long it’ll work because I somewhat randomized my chances for success by just taking what I could find. (If your battery drawer is better organized than mine, I salute you!)

When you start “going through the battery drawer” to design a sales compensation plan, you have just about as much chance to get it right as I did with my mouse. Problem is, the stakes are a lot higher for your company and the sales force. You might find a great combination that results in a super-charged field sales team, producing at unheard of performance levels. Winner winner, chicken dinner!! On the other hand, think of all the other possibilities, like great payouts but not so great results, or any combination that results in detrimental effects on the sales force or the company..

So randomizing the inputs probably isn’t how you’ll be successful in this particular compensation expertise. You need to be thoughtful with sales compensation plan design so unlike my experience with the battery drawer, you’ll produce the kind of excellence you can rely on. For example:

  1. Batteries might not be the problem. Sure, it’s easy to check the batteries first, but you should always start with the owner’s manual! Consider all the factors that influence the results your sales force are getting. Are they trained? What’s the status of your product or service, are you growing or falling behind the competition in features and benefits? Is marketing generating demand? Did the business strategy change and the sales plan didn’t? Are finance or other processes keeping the sales force from getting desired results?
  2. Use the right size batteries, put them in the right way and don’t mix sizes. I’ve opened up battery cases and found the wrong sized batteries even though almost every battery case made is pre-molded to the right size. But desperate times call for desperate measures, right? It can be so easy to just try something and hope it works and everyone can get back to work. But not having the right mix between base and incentive, unclear sales role definitions, having the wrong people on sales incentives or using any old performance measure mix may work for a while but will eventually short out.
  3. Some batteries aren’t accessible. Many newer electronic products use battery power, but you aren’t supposed to open the battery case. If you’re being told there’s nothing wrong with the sales plan, and you haven’t seen any supporting performance data, I’d suggest getting another opinion. Typically sales operations groups are rich with data, and with a little market data you can fairly quickly get an idea for just how effective your plans are, and whether getting at those batteries might just be a worthwhile project after all. For example, are top performers earning at the desired excellence levels? How much are underperforming reps earning? Did most of the sales force achieve quota last year? Were they supposed to?
  4. Don’t use used batteries, and safely dispose of the old ones. Chances are your business isn’t really exactly like the one your new sales VP came from, or where your HR/compensation peer works. You have so many options and alternatives when it comes to designing sales incentives; don’t give away your creativity to others. And after you’ve tried something and it didn’t work, make sure you’ve documented what the issue was. Chances are you are probably doing something right but could just use a fresh set of eyes (or new batteries?).
  5. Sometimes you have to go to Batteries+. Although batteries are available at most corner stores, sometimes you need an expert to help figure out what to do next. Over the years I’ve found that most people seem to think they are compensation experts. As a matter of fact, count the total employees in your company and subtract one and that is the number of people who seem to know as much (or more) about compensation as you do.  And you probably don’t need an external consulting expert for every single thing every single year. But if it’s been a while and you’re not sure you’re still getting the most out of sales compensation, there are folks like me who do this work, and by the way really enjoy it. I’ve found few places in a company where you can learn more about a company and what it takes to make them successful than in the process it takes to design sales compensation plans.

Last night we were going to sit down and binge on a show on one of the streaming services. I went to turn on the TV and a message came up, “No Source Identified” so I take the remote and start pushing buttons, nothing happens. I shout downstairs, “Bring up 2 AAA batteries for the remote!” One, I hadn’t opened the remote fully other than to see it had AAA batteries, and two, I hadn’t thought what else might be wrong. Turns out I was wrong on two counts (the wi-fi needed to be reset, and the remote required 4 AAA batteries). After I reset the wi-fi, everything worked and we happily binged away.

I’m happy again, and continue to learn about batteries.

So randomizing the inputs probably isn’t how you’ll be successful in this particular compensation expertise. You need to be thoughtful with sales compensation plan design

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I Could Tell You, But Then I’d Have To…

I Could Tell You, But Then I’d Have To…

I have enjoyed teaching a couple of compensation certification classes for WorldatWork, the association for total rewards professionals. I would get a lot of questions about a lot of topics, but one that frequently surfaced – whether in a module or not – is “this is great, but would you tell your employees that?” And this isn’t some super-secret recipe for the incentive plan funding that makes you an insider, this is some of the compensation basics like pay grade, pay range, that sort of thing.

So just to get it out of the way let me say that I am a believer in sharing more openly about compensation than most people I’ve met. That belief doesn’t come from a beating I took or something I learned when I was young, it comes after seeing what happens when you don’t share more openly. The best thought-out programs with the most strategic elements and execution can still fail when not properly communicated. As a matter of fact, I’d say the two things that most often are an anchor around the neck of an otherwise successful program are the lack of management training (related topic, different time) and the lack of effective communication.

Think of it another way. What if for one of the biggest investments most people ever make (like your house) all you were told was, “it has a total of 11 rooms. Sorry, I can’t be more specific.” Is that enough information for you to be all-in as a buyer? Should the seller, who really wants to unload the house reasonably expect to sell it?

Compensation is a huge investment your company makes, and if you are keeping secrets you probably aren’t getting the most from your money. Here are my Top 5 reasons you should communicate as much as possible about your compensation programs:

  1. Employees will make up the part they don’t know.
  2. Missing information is a constant negative and anxiety producing reference point.
  3. Most of your employees are adults and you expect them to act like adults in all other ways.
  4. Underlying problems don’t require secrecy, they require fixing.
  5. Put accountability where most of us want it anyway, in the hands of managers.

Making it up. This is a very real outcome of not communicating compensation. For example, a base pay program is typically the largest ongoing investment an employer will make, yet one of the areas that can be shrouded in greatest mystery when pay grades and ranges exist but are closely held secrets in HR. And the associated HR strategy implications in areas like succession planning and career development can’t be overstated if an employee doesn’t know what sort of pay opportunities you’ll offer them for their continued growth of skills and abilities. Without facts from you, other opportunities with known facts are certainly more realistic outcomes.

Negative reinforcement. Your employees make decisions every day about their engagement. The anxiety that can be produced in a person when managing critical aspects of life without sufficient information isn’t something that should come from something that represents a major part of someone’s life and livelihood. And even though it’s not really lying, you’ve got to dance your way out of it every time someone asks you a question your policy doesn’t allow you to answer, and that doesn’t leave a lasting positive impression either.

Maturity is a two-way street. Since most of your employees are adults and you expect them to act like adults, what makes you think they can’t handle the truth? The best example I’ve experienced of telling the truth about compensation was at a company I worked for during the first recession, when we knew we weren’t going to be able to give base salary increases that year. We told employees three months in advance of the usual date. Sure, there were a few rants, but by the time it came to execute the program, it was a non-event.

Fix the underlying problem. If you have something uncommunicated because it would cause unrest, fix the underlying problem – design, training, whatever, don’t mask it. Salary range spreads causing compression? New hires coming in above current employees? Neither a good reason to stop communicating about pay ranges, but good input for the next program design cycle. Segmenting your promotions budget so organizations with more entry-level employees get more funding? Explain how job families work and the concept of promotion velocity for early-career employees. These aren’t difficult problems to solve when you communicate openly.

Accountability in the hands of managers. Providing needed compensation information to those who make the day-to-day decisions about the base pay, promotions, classifications, bonuses, recognition, etc. only makes the most sense. One common issue with open compensation communications is who has control. After all as it is frequently said, information is power. Do you really need “Compensation Power?” or can you afford to let managers do what their job descriptions tell them they are supposed to be doing? Sure, there are some who abuse it, but realistically that is a small minority. Most management jobs come with some level of fiscal authority anyhow, and in most cases that is many multiples above what we’d ask of them in a compensation program.

I strongly encourage you if you see yourself somewhere on the secrecy side of the communications spectrum to re-evaluate your approach to compensation communications. At least start asking yourself whether the way it works now couldn’t be improved. Good communication won’t repair a flawed rewards program, but ineffective communication will cause a well-designed program to fall short of expectations.

So just to get it out of the way let me say that I am a believer in sharing more openly about compensation than most people I’ve met. That belief doesn’t come from a beating I took or something I learned when I was young, it comes after seeing what happens when you don’t share more openly.

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Think Outside the Box: Better Labor Cost Management

Think Outside the Box: Better Labor Cost Management

“What is our average compa-ratio, Jim?” asked the CEO as I sat down to report on our annual focal exercise.

Having been through enough of these meetings over the years, of course I had the answer; as a matter of fact, I had it calculated not only for the whole company but for each division, each country, and each corporate function. But I didn’t want to just spout off the answer, I wanted to educate him about how to think differently about his labor costs. Unfortunately, he had worked with enough compensation professionals over his storied career and had been taught by each and everyone that if he could just get the compa-ratio to 1.0, another year could be put in the books.

“We ended at 0.99,” I said, “but what I really wanted to review with you was…”

“That’s great Jim, and tell your team that Jerry thinks they did a grrreat job! Could you ask Kathy to come in here on your way out?”

I shook my head again as I headed for the door. Not only because he still referred to himself in the third person, but again I was not getting the sort of traction that would really make a difference in the company’s performance. I mumbled to myself, “Yes Jerry, it’s just wonderful to know that all your averages are aligned. In addition, do you know you have 20% more Senior Professionals than your competitors? Do you know that when it all adds up our labor costs are 4.5% more than your competitors, and on a $200M payroll, that’s $8M, or about $0.05 per share?”

As the aisle row occupants of cubeville stared at me talking to myself again, I decided I needed a better approach than expecting the CEO to just nod his head and hang on my every word. What I needed was a few more people with some time and some skin in the game in order to make the difference bottoms-up rather than top-down. I needed people with shortages of resources to get their jobs done. I needed Human Resources.

Even then it was a hard sell. I had a solution looking for a problem. I finally found an ally in the HR Director of the Technical Services organization, a group that was in the process of trying to manage global labor costs through a planned migration to lower cost-of-labor markets and away from some of our higher-cost US urban locations.

It didn’t take long for her to get it – it seemed she was “high-potential” after all! Her organization’s costs and associated factors looked something like this, with these assumptions:

  1. Our average wages were the same as the market at each job family level
  2. Our benefits were equal to the market, 35% of base pay
  3. Our incentive targets were competitive and identical to the market

The difference in how we’d looked at this in the past was taking off the “Jerry Glasses” and looking at the data in a whole different way – our total labor costs, not just our average labor costs… our “Portfolio” of employees. You see, you have choices in how you manage the decisions around factors and variables that make up your labor costs, even while maintaining the typical “50th percentile” strategies that so many companies employ.

So even though we’re matching the market in all the traditional senses we’ve become accustomed to, we’re still exceeding the overall market cost-of-labor by 4.5%, or with this example the sum of $13,000,000!! Would that make a difference anywhere in your business – hiring more skilled technicians, salespeople, funding a new product line, avoiding layoffs… you fill in an example.

How does this happen? Here are a few things to check for after you’ve done an analysis like this:

  1. What is your promotion policy and practice? At Our Co, we enabled a process that says that people can come to expect promotions when they are high performers. Nothing really wrong with that on the surface, but it got away from us, and we didn’t take into account how many people we already had doing work at senior levels. We probably should have thought about more rapid promotions for employees hired at lower levels and slower rates for higher leveled employees.
  2. We’ve had a few difficult years on the merit budget, so pay increases have been hard to come by. But when a new employee is hired, they can be hired at pretty much whatever level the manager wants. Our managers started over-hiring levels because they didn’t expect they’d be able to give pay increases. We’ve got a lot of competitively paid but under-skilled people as a result.
  3. We’ve ruled out the geographic labor cost issues – we know that the cost of labor is higher in places like the Bay Area, so that’s not a factor here.
  4. Obviously we also discovered a few more dollars hiding from us, since incentives and benefits are a factor of base. Never forget that, as a business it’s all about fully-loaded labor costs.
  5. One thing we did do right was we “gated” movement into the P5 or expert level of the job family. That means it requires additional approval to promote or hire someone there. It is more administration, but at that level the responsibilities are so much greater and implications of misplacement are of greater consequence so it’s worth it.

What can HR do with data like this? Thinking first of a popular topic, how about an element of workforce planning, as in an overlay around labor cost? How about coming to the table with a proposal to reduce labor costs over time by realigning skill requirements and leveling? Obviously, there are many other aspects of workforce planning to consider, but armed with cost-of-labor data, a smart HR Leader can create hiring plans around needed skills and determine whether training and development may enable business needs rather than taking an expensive hiring or replacement route.

Data can be intimidating, or at least that’s what people tell me when I ask why they never got into compensation. But almost anyone can see the clear benefits that present themselves when looking at data differently than the way we’ve been training everyone else to do so for so many years.

Data can be intimidating, or at least that’s what people tell me when I ask why they never got into compensation. But almost anyone can see the clear benefits that present themselves when looking at data differently than the way we've been training everyone else to do so for so many years.

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