As I meet with executives and senior managers, they increasingly want to discuss the returns that their organization is receiving from compensation. They are looking less at employee compensation as a cost and more as an investment. They pose the  question: What is our return on investment from compensation? 

The first step in deciding the impact of compensation is to develop a compensation strategy. This month’s Compensation Alert will discuss the importance of a compensation strategy. Next month we will address how to develop a strategy.

Compensation strategy is important. Organizations need to know:

  1. Are their compensation programs effective? To answer this question, there is a need to answer the question of:
  2. Are compensation programs doing what we need them to do? And to answer this question the following question needs to be answered:
  3. What does an organization want its compensation programs to accomplish?

Compensation strategy is the answer to the last question. Strategy is a statement of what we want compensation programs to accomplish.

Compensation strategy is part of a company’s human resource strategy. External factors such as trends in supply and demand for talent, customers, markets, challenges and business opportunities affect where an organization is. Internal factors such as core competencies, values, culture, strategic initiatives, and skills of current employees additionally affect strategy.

Compensation strategy has several elements:

  • Program objectives: what is the organization trying to achieve?
  • What will the organization pay for? For instance, how important is pay for performance?
  • What markets are being used to compare the company? What type of business, geography, size of organization, competitors?
  • How competitively should the organization pay: median, above average, below average?
  • What programs are being offered to what part or parts of the organization?
  • At each level in the company, what is the right mix of programs?

Compensation strategy provides a road map. If you don’t know where you are going, how do you know when you get there? What road to take? It sounds both obvious and somewhat corny, but an organization needs to know where it wants to go in order to plan effective routes, monitor progress, and know when it has arrived.

Compensation features cannot be effective without reference to desired outcomes. How does the organization know if it’s is spending the right amounts, to get the desired results?

There are several ways that compensation strategy should be used. Your compensation strategy can help in:
•    Designing new programs.
•    Evaluating existing programs.
•    Communicating programs.

Compensation strategy focuses on both what is to accomplished and how it will be accomplished.

Next month’s eNewsletter will address developing a compensation strategy.

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Pay equity is an important consideration for employers today. Unfortunately, it’s not something that happens easily. In fact in a recent study we came across, just over a third of respondents had in place a process to address pay equity issues. Addressing this important concern requires a well-considered process to ensure that individuals doing the same job, with the same skills, and level of proficiency within those skills, are paid equally. And pay equity is not only good for the individuals impacted, but has been shown to have a positive link to overall engagement, turnover, and customer service metrics.

Pay equity isn’t just about fairness. It’s about creating an environment that fosters employees to focus on customers, rather than comparing salaries with coworkers. It’s also indicative of a culture that values its employees and is committed to giving them visibility into the process that impacts compensation. This visibility leads to an excellent employee experience, which in turn leads to an excellent customer experience.

Hiring

The marketplace for talent is increasingly transparent. Between the wealth of information online and the ease with which people can connect and share information on social media, bad employers have nowhere to hide. Taking a strong position on pay equity can help a company’s brand in the marketplace.

The equity focus is also indicative of a culture that embraces diversity of all skills, competency and performance, taking an active role ensuring multiple perspectives are given equal credence.

Turnover

Turnover is costly, disruptive and potentially damaging to the employer’s brand. Although turnover will vary by industry, all organizations want to keep their good employees longer. Compensation, and in particular, equitable compensation, according to all surveys, is a significant factor in retention.

Organizations unable to retain talent face a number of challenges, from impact on productivity and morale, to eroding levels of customer service. Obviously, a formal focus on pay equity is not the only factor to impact turnover. But when organizations focus on things that matter to employees, they reap the benefits of employees that stay with the organization.

Engagement

Engagement has become a critical business metric, linked to everything from revenue to customer experience to organizational alignment. And there is no question that compensation matters to engagement. For instance, a recent study showed that the number one component of engagement and retention was compensation.

Performance

Of course, the goal of HR strategy, including compensation, pay equity, and engagement is to drive business performance. It has been shown that organizations that achieve above average engagement levels for their industry were twice as likely to also achieve above average levels of productivity. In addition, they are two and one-half times as likely to have achieved or exceeded revenue goals.

Conclusion

Pay equity is an important mindset for organizations and the workforce as a whole. When employees are treated fairly and equitably, it builds trust, which leads to engagement, retention and performance. It removes difficult conversations between managers and employees, and it allows focus on the work at hand.

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Please contact me at nlappley@lapppley.com or (847) 864-8979 to discuss any questions you may have from this eNewsletter. Feel free to forward this email to anyone else who may be interested.

Low unemployment and a looming labor shortage means employers have to work harder to attract and retain top talent. Across gender and education levels, salary and benefits are the most important factors when job seekers are choosing an employer, according to research conducted by Randstad North America. 

It is becoming a candidate-driven market again, and job seekers have more tools to determine if they are getting paid what they’re worth.

A recent survey by Gallup asked the question: “What do workers want most out of their job and their company?” The answer can help companies develop better retention strategies. It can also give insights into why employees may join the organization.

Gallup asked employees how important certain attributes are when considering whether to take a job with a different organization. Although the reasons for changing employers are often multi-faceted and typically include the ability to do what they do best and greater work-life balance, a significant increase in compensation is one of the most important reasons.

A Significant Increase in Compensation

Roughly four out of 10 employees (41 percent) say a significant increase in pay is “very important” to them when considering a new job. Specifically, more male employees than female employees say this factor is “very important”. Not surprisingly, more millennials and Gen Xers, than baby boomers, rate this factor “very important” in a job search.
Income matters to people, and organizations cannot overlook its importance. Organizations should ensure that managers have conversations with candidates explaining in great depth the company’s compensation strategy and how compensation programs work.Retaining Current Employees
At the same time organizations must focus on retaining current staff, particularly top performers and high-potentials. Most companies address this in several ways:

  • Developing a Compensation Strategy – Organizations develop a compensation strategy to better understand how pay supports the overall strategy and culture of the company.  A compensation strategy will describe targeted levels of competitiveness for salary, incentives and benefits; the organization’s approach to pay for performance; and how pay programs will be communicated.
  • Compensation Market Competitiveness – Companies regularly assess the competitiveness of their compensation programs by comparing themselves to market. Consideration is given to who they compete with and who they hire from and lose employees to.
  • Salary Plan – As my colleague Rich Sperling and I have stated in our presentations to senior management and human resource groups, merit increases to top performers and high-potential employees ought to be at least twice the amount given, on average, to fully-competent employees. For example, with an overall salary increase budget of 3 percent, 20 percent of employees can receive an average of 5 percent, while the remaining 80 percent receives an average of 2.5 percent.
  • Incentive Compensation Programs – Companies are slowing moving to increasing the number of variable pay plans for two important reasons: 1) to reward employees for achieving corporate-driven objectives, and 2) to reduce fixed costs.
Now is a good time to review your organization’s compensation strategy and determine if its goals are being met. If yes, great and continue on track. If not, re-evaluate your compensation strategy to determine if it remains appropriated and review pay programs to ensure they are in accord with your strategy.

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Please contact me at nlappley@lapppley.com or (847) 864-8979 to discuss any questions you may have from this eNewsletter. Feel free to forward this email to anyone else who may be interested.

“Don’t sell me products. Instead, lead me to 
solutions that incorporate your products.”
(Vice President of a strategic account)

In this issue of the Salesforce Alert newsletter, my colleague, Tim Weizer, shares a case study regarding a strategic change that helped achieve effective salesforce results.

The senior sales executive of a middle-market financial services company was puzzled. Key accounts of the firm had often said they were satisfied with the company. Yet the company failed to achieve one of its major objectives: getting deeper penetration of those accounts with a new marketing strategy emphasizing new products.

Individual interviews were conducted with selected key accounts at the vice president level. The answer to the puzzle was expressed clearly by one strategic account. “I want your salesperson to know me, my business, and how your products can provide solutions to my problems,” he said. Strategic accounts now demand this value proposition from their major suppliers.

Here are the five steps the company employed to address the situation.

Step 1. Know where you stand before you embark on addressing this situation. The company had interviews conducted with customers and executives at both the vice president and operational levels to get a clear and factual understanding of:

  • The account’s business as the account sees it.
  • Their business goals.
  • Their problems.
  • How the company is viewed as either a problem solver or a product pusher.
  • How the account’s life would be different if the company no longer existed.

Step 2. Get commitment from the company’s executives that major change in the company is acceptable within the company’s risk-averse culture. Armed with the above strategic account input, the sales executive developed an initial estimate of what additional sales and profitability could be expected from addressing this value proposition. He then got management’s agreement to be open to change the process of how it sells to strategic accounts.

It was clear that without this upfront commitment, no significant change would occur. Without commitment, he knew it would be futile to proceed with any further analysis and financial estimates.

Step 3. Rethink the entire strategic account selling process. This step meant doing a thorough analysis of:

  • The steps involved in the traditional selling process.
  • The time spent with the account’s VP and different operational executives.
  • How well the sales skills/abilities/competencies matched up with the account’s needs.
  • How well the sales organization was managed and rewarded for both existing and new products’ results.

An online salesforce effectiveness survey was included in this step to get the field’s input on a number of topics key to their work with strategic accounts.

The company then developed two options: (1) start a new sales group focused on the strategic accounts’ VP level and add a technical specialist to address questions on the spot, or (2) upgrade the existing senior sales representatives with current new product, technical, and solution selling training. A second and more detailed estimate of additional sales and profitability of each option was prepared.

Step 4. Present each option and a recommendation to the senior management group. Include an implementation plan for the recommended option. The sales executive recommended the formation of a new sales position focused on the VP level along with the formation of the technical specialist position.

In addition, small, cross-functional teams were developed to fully address the value proposition expressed by the strategic account, namely “don’t push product…lead me and my people to an answer.”

HR working with the VP Sales developed a team-based compensation plan for this new structure. Particular attention was given to ensure that the new plan did not create unproductive conflict or misaligned objectives between jobs.

Step 5. Get Started. Begin showing the strategic accounts that you are addressing their value proposition. The sales executive began with a pilot of the new sales position, the technical specialist, and a small cross-functional team. The sales executive also conducted two solid months of training for the team that would be supporting and visiting the strategic accounts.

Results have been better than expected. New products sales to the strategic accounts in the pilot group are up and the teams are working well as a unit.

Contact Us
If you would like to discuss this case study or address any questions, please contact Tim at tim@salescne.com or simply reply back to this email to reach Neil.

The face of performance management is changing with organizations such as Microsoft, Deloitte, Accenture and General Electric streamlining their performance reviews, or even scrapping them. This trend comes from a growing perception that annual performance reviews might not be the best way to manage and improve performance in the workforce. 

Perhaps the question isn’t whether we should abandon performance reviews, but how can we make them better. Rather than treating it as a dreary exercise to comply with policy, we should think of how we, as leaders and HR professionals, can drive a culture of continuous feedback where every interaction can build commitment, engagement, and productivity.

Recent research shows that 77 percent of HR executives believe performance reviews don’t accurately reflect employee performance; there is also not much evidence that performance reviews have a positive affect on business performance.

Yet, that same research also indicates that one should not be in too much of a rush to scrap performance reviews or ratings. Many organizations that completely do away with performance reviews see productivity decline. What’s more, employees tend to rate their conversations with their managers lower in the absence of a formal performance rating.

Structure is Needed

I believe what this shows is that some of us resist structure when it’s there, but crave it when it’s absent. Although scrapping performance reviews frees both employees and managers from a process that can be viewed as an unproductive use of time, it also means that the business lacks a formal process for linking employees’ goals and performance with the strategy of the business. It’s hard to be fair and consistent, without a formal process.
Stepping back, performance management is about helping employees set career goals, correcting any performance issues, and ensuring that they have the tools to do their work. Even with the best intentions, much-need performance interventions may fall by the wayside if they are not anchored and documented.Feedback Should be Ongoing
One answer that keeps coming up regarding the question of better performance management is that it should not be simply an annual process, but that it should allow for more frequent feedback. A recent PwC study showed 60 percent of survey respondents (and 72 percent of those under thirty) wanted feedback every week.

This makes absolute sense. Employees should be learning all the time and their managers should be providing ongoing feedback and reinforcing positive behavior to ensure that employee performance is aligned with strategy.

Below are a few ideas about how organizations can implement a more agile approach to performance management.

  • Set clear expectations: Have clear performance goals linked to the overall business strategy with objective metrics so that employees know what is expected of them.
  • Provide feedback more often: in addition to formal feedback sessions, encourage managers to have weekly or at least monthly check-ins with their teams.
  • Keep it simple: get rid of those long performance review sheets and focus on the most important questions and metrics.
  • Look forward rather than backward: rather than dwelling on past successes and failures, focus on what the employee can do to grow in his or her role and how the organization can support the person’s ambitions and performance.

It takes considerable effort to build a high performance culture. We need to consider every interaction as an opportunity to influence employee’s performance in a positive way to build achievement of desired results, commitment and engagement.

Contact Us
Please contact me at nlappley@lapppley.com or (847) 864-8979 to discuss any questions you may have from this eNewsletter.

Many organizations profess to have a pay for performance compensation plan in place. What does that mean exactly? Does it recognize and reward the right employees? 

What the definition should be is that the right employee is whoever has performed well above the majority of other employees during the performance cycle. Those employees that the organization can rightly call high achievers. And those employees whose resignation would cause their manager to lose sleep at night. Everyone else should be treated differently.

So What’s the Problem?
Well, that’s not how things work in many organizations. There are a number of other considerations besides performance alone. The result is that perhaps the right employee does not get rewarded. Or what they are given is not much more than what is also given to the average employee.

Why does this happen? Several potential culprits follow:

  • Not much money to go around: This is a common argument when merit budgets are tight. That is to say that when a manager cannot make much of a distinction when granting increases, the manger cannot make much of a distinction with rewards either. Proponents often say, “Let’s just push the easy button and give everyone the same raise.”
  • Everyone deserves something: Advocates of this strategy suggest that if an employee has not been fired then they should get something for sitting around for 12 months. They proclaim, “Hasn’t inflation increased for everyone?”
  • Someone might quit: An employee quitting is often a manager’s worst fear and in this case, may lead to an interest in providing pay increases that would retain staff. Surely they suggest, “If an employee quits it’s more work for the manager and the potential for criticism from their boss.
  • I want to be liked: “I want to be liked” is an attitude often prevalent among new managers, who want to build a collaborative team. They can be reluctant to make performance assessments and pay increases for their team. Many would blame human resources for not providing enough funds.
  • They avoid career-impacting decisions: Some managers would prefer someone else play judge and jury with an employees’ career.

Making the Hard Decisions

Rewarding the right employee becomes essentially about the manager being willing and able to make discretionary decisions about an employee’s job performance and effectiveness as an employee of the organization.
Because the budget for pay increases is always going to be tight, there will never be enough money for everyone. So an effective manager has to choose how to spend available reward dollars in a way that generates the best return for the organization.In some cases, this means that an average employee may not receive a merit increase this year, even if performance has been ok / satisfactory / meets expectations.

Making these decisions is not easy. Nor is it supposed to be.
My colleague, Rich Sperling, and I have spoken and written extensively on the topic of taking care of top performers and high-potential employees.  Contact me and we will be pleased to share our thoughts with you.
Contact Us
Please contact me at (847) 864-8979 or at nlappley@lappley.com to discuss discriminating pay among employees based on performance.  And forward this email to anyone who may also be interested in this topic.

By Tim Weizer | May 2016

In May 1992, the Wall Street Journal bluntly stated, “Nothing positive happens in the absence of revenue.” This statement is equally true today. An organization’s salesforce, and its effectiveness to generate revenue, can be significantly enhanced by the role of the HR function.

Of the many diverse drivers of salesforce effectiveness, 2 topics are worth a brief discussion. Under the topic of People are the success profile, hiring and training/coaching of the salespeople. Under the topic of Activity Enablers are the incentive plan and performance management program.

People

When it comes to salespeople, the chief human resource officer (CHRO) and key HR staff are seen as having a special skill in judging people and recognizing a person’s hidden talents. Whether judging a sales representative’s skills as a “hunter” or “farmer,” or judging the skills of a regional sales manager for higher management positions, human resources needs to not only consider today’s business and competitive environment, but also the future needs of the organization relative to its growth goals. In this regard, the CHRO is seen as having a special knack similar to the CFO’s skill in making inferences from the company’s numbers.

In addition, the CHRO and HR staff are key in two other areas. The first is diagnosing personnel problems that may arise when the sales function is not performing well. Is it because of the mix of talent, the reporting relationships or the absence of strong, cross-functional working relationships? These are all questions to be answered.

The second area is prescribing actions that will add value to the organization. For example, keeping tabs on the senior sales executives of competitors can lead to making meaningful predictions not only on how the competitors may be changing their overall sales strategy, but also on whether competitors may be looking to steal away your sales stars that fit their new sales strategy. One option for retaining sales stars is built on the long-standing premise that sales stars see pay as a personal scorecard. Some companies increase the impact of individual performance through an individual multiplier to incentive earnings.

Activity Enablers

The CHRO‘s role in this area may often be viewed as limited to understanding the duties and responsibilities of individual sales positions and matching their compensation with the relevant marketplace. A growing trend, however, is for the HR function to go beyond that point and look at a broader picture. Namely: What is the importance of the sales position? What value does an individual salesperson contribute to the company? And, what should be the relevant base salary and incentive opportunity given the answers to those 2 earlier questions?

In this regard, the CHRO is seen as the team leader in joint discussions with sales management, the CEO and CFO.

Why This Perspective Is Barely Evident

A lot has been written about the HR function and its lack of strategic focus. Everything from its transactional nature to the many new legal aspects of the function, to a lack of budget, to not enough headcount. A recent Google search on the topic of “Strategic HR” yielded more than 250 million listings. So, there is a lot of ongoing discussion.

In my opinion, there is an important reason why this perspective is not more prevalent today. The senior leadership team may view the CHRO as too HR academic and not analytical. One way to combat this notion is for the HR team to conduct some sales incentive plan analytics that depict the performance level of the current plan. For example, comparing the actual distribution of performance across the salesforce with the expected performance and then determining if these results correlate with the organization’s financial performance.

Likewise, the HR function could begin to develop an analytical or behavioral-competency-based success profile of the company’s superior salespeople in order to improve sales effectiveness and efficiency.

Broader Actions

To begin the process of becoming a strategic partner to the CEO and CFO, the CHRO may also want to consider these broader actions:

  • Ask to attend meetings where the CEO and CFO discuss not only quarterly results, but also talk about the company’s strategic plan and objectives. Take note of areas where the salesforce will be important for success (e.g., a new product introduction in a B2B marketplace).
  • Collect data about the results of recent key activities that involve the sales function and use analyses to improve the working relationship between sales and other functions. For example, collect and analyze data on successful new product introductions and the interaction of the salesforce with marketing, engineering and other important functions seeking to improve the existing structure and/or processes.

Contents © 2016. Reprinted with permission from WorldatWork. Content is licensed for use by requestor only. No part of this article may be reproduced, excerpted or redistributed in any form without express written permission from WorldatWork.

road-sign-showing-changes-ahead

Last week businessman, Donald J. Trump was elected the 45th president of the United States. To many, the election’s result was unprecedented and unpredictable. This month’s Compensation Alert will summarize current writings on total rewards changes that may occur under the new administration.

Trump’s issues on total rewards include a mix of pro-business positions and some novel approaches to policy changes.


Minimum Wage

Trump has said that the federal minimum wage should be raised to $10 per hour, but that “states should really call the shots.” Changes to minimum wage laws appeared on the ballot in several states during this election, including approved increases in Arizona, Colorado, Maine and Washington state. It is conceivable that Trump could take action at the federal level as he has toyed with the idea.  Quite likely liberal-leaning states, such as California, will continue to push for a minimum wage increase, while states such as Georgia, Texas and Virginia will keep it at the federal minimum.
 FLSA Overtime Rules
Trump supports rolling back the new U.S. Department of Labor overtime regulations scheduled to take effect on December 1st.  At this point, most HR observers believe President Obama administration’s overtime rules will proceed as planned. Although the president-elect has previously opposed the changes, he may not take immediate action to revert them. On the other hand, Congress may very well step in and propose its own changes.
 Federal Child-Care Support
Trump’s plan to enhance child-care would allow working parents to deduct dependent care expenses on their income taxes at rates higher than the current deduction. His plan also would allow dependent care savings accounts and would incent employers to provide child care in the workplace.
Federal-Paid Leave Changes
Trump’s child-care plan also includes six weeks of paid leave for new mothers. Note his proposal is silent pertaining to fathers.
The Affordable Care Act
Trump has called for substantial changes to the Affordable Care Act (ACA), and has openly campaigned to “repeal and replace Obamacare.”  A recent survey of HR participants reported that this is the top policy concern to contributors. However, Trump has recently said that he is in favor of current provisions retaining children until age 26 and covering preexisting conditions. Congressional Republicans at the same time appear to favor repeal of the Cadillac tax, the expansion of HSAs, and a repeal of individual and employer mandates.
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If you would like to discuss these changes further, please contact me at nlappley@lapppley.com or (847) 864-8979. And feel free to forward this email to anyone else who may be interested.
New Web Site 
We are pleased to announce the launch of a new web site. We encourage you to take a look at www.lappley.com.  Please provide feedback and pass it on to anyone you feel may be interested.

In September, Rich Sperling and I made two presentations at the Illinois SHRM Conference. A total of approximately 65 conference attendees participated in the two seminars.

At the end of each session, we asked the participants two questions: “What is the most significant compensation issue(s) that you are facing in your company?” and “Why is this important to senior management?” In this month’s Compensation Alert, we will provide you with a report on the results of our quick survey of compensation trends from conference participants in 2015 and 2016.

What is the most significant compensation issue(s) 
that you are facing  in your company?
Survey Year
Topic                                                 2015      2016
Not at market/low pay/high pay    25%         33%
Pay for performance                         25%           0%
Approach to pay lacks structure     18%        42%
Communicating pay                            9%        17%
Other                                                    23%         8%
Not paying at their targeted market competitiveness level emerges as the top issue reported facing organizations. Competitiveness generally represents at least three issues: (1) the ability to attract capable employees; (2) the ability to retain top performers and high-potential employees; and (3) the need to treat employees fairly which touches on gender equality, minimum wage, and compression. Addressing competitiveness involves having a well-articulated compensation strategy, including competitiveness targets, understanding how competitive the organization is currently paying, and developing a plan to move to targeted levels.
Pay for performance, not surprisingly, is equally reported as an issue as several of our SHRM presentations centered on taking care of top performers. Approaches to differentiating performance are well established. Although salary increase budgets recently have been modest, addressing this issue is not about budget, but the will to differentiate rewards.
 
Those reporting a lack of structure either believe they need a more formal approach to salary grade structure and salary ranges, or want to move from a bonus program to a more formal performance incentive plan.
Communicating pay is an issue that is neglected at most companies. Organizations spend significant efforts communicating benefit programs, but exhibit modest efforts explaining their salary and incentive programs.
Why is this important to senior management?
Survey Year
Topic                                                2015   2016
Retention/turnover                         57%       10%
Competitiveness                              32%       70%
Communicating compensation      0%       20%
Other                                                   11%       0%
 
Responses in 2016 report a shift of senior management towards competitiveness which, as discussed above, includes retention. The issue of competitiveness represents a heightened focus as the result of lower unemployment and a steadily increasing economy, coupled with low inflation and conservative salary increase budgets. One result is an increased interest of organizations to implementing incentive programs to aid in taking care of top performers and high-potential employees.
The two topics we presented at this year’s Illinois SHRM Conference were titled: “Compensation Strategy – Develop, Communicate and Use” and “Use ROI to Get Compensation Programs Approved”. We will be glad to discuss either of the presentations with you.
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