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The year 2018 has been one of major volatility in many markets creating widespread uncertainty. In this environment, it is understandable that companies are evaluating the impact market volatility may have on their salesforce incentive plans for 2019.

Fortunately, mindful planning and clear communication about your salesforce incentive plan can accelerate growth even in an uncertain economy. But first, two important next steps are to sell this new plan to the C-Suite and effectively communicate the new plan to the salesforce. Getting these steps right creates a double win. Salespeople win because appropriate rewards are available to them, while the company wins with a more motivated sales team aligned with the company’s goals.

Here are four recommendations supporting a win-win outcome by gaining approval of your salesforce incentive plan with the C-Suite:

1) Provide a Clear and Crisp Upfront Summary. Make the first page of your summary a topline summary. Start with the reason for change, a brief description of the approach used in analyzing the current plan, the primary plan changes being suggested, and the results of the new plan’s simulations. Then end with the benefits of the new plan (for example, better alignment with the company’s business strategy or more focused emphasis on margin enhancement).

2) Present the Rationale for the Recommended Plan and Tailor It to Your Audience. Visual perception research suggests that presenting a picture can often be more persuasive, engaging and powerful than text and speech alone. You can think of using a visual, for example, to demonstrate the extensive analysis done on the current plan.

Also, consider using a well-constructed table with numbers to let the C-Suite see for themselves the point you are making.

3) Strive for Clarity and Transparency. Sufficient time should be spent to ensure each page of the presentation is crisply worded and each chart can be clearly understood. Without this, the credibility of the speaker and the recommendations will both suffer.

4) Tell Them Again What You Told Them. At the end of the presentation, share an executive summary to refresh everyone on the main takeaway points. Then ask for agreement. Be prepared and open to engaging your audience in discussing your recommendations, alternatives you reviewed, or objections that may arise.

After securing approval for changes to next year’s salesforce incentive program, it’s time to move to the task of communicating the plan to your salesforce.

Here are three recommendations to get your salesforce on board with the incentive plan:

1) Provide a Clear Summary Incentive Plan Description. Including these elements in the description will promote understanding.

  • State briefly the business reasons why the incentive plan has changed.
  • State the incentive plan components along with a clear description of each. 
  • Show an example of how the new incentive plan payout at target compares to the old plan by using an example of “Salesperson X average performer”.
  • State the process that will be used, and by whom, to address any issues.

You may want to consider adding a frequently asked questions (FAQ) section at the end of the written plan description.

2) Create a Short Video to Support the Plan’s Introduction. With the increasing popularity of online videos and the shrinking of attention spans, an engaging two or three minute video can deliver the elements of your incentive plan in a compelling way.

For example, in the video the company’s president could briefly state why the plan has changed, while the vice president of sales could highlight the new plan’s components and how they align with the company’s strategy. A sales administration manager could then state the target earnings opportunity and payout frequency and refer the viewer to the summary plan description for further details.

3) Anticipate Resistance and be Prepared to Counter Challenges. Our experience shows that it is very likely that an individual or a group will resist the proposed changes to your sales incentive plan. For example, a star salesperson may see the need for plan adjustments, yet still feel anxiety about the changes. Anticipate resistance and be proactive. In this case, meeting in advance with your star salesperson may offset objections during your official presentation.

Contact Us
To learn more or discuss your sales compensation concerns, please contact Tim Weizer at tjweizer@gmail.com (phone 312-479-6411) or Neil Lappley at nlappley@lappley.com.

Variable pay has evolved greatly over the past five to 10 years, and is expected to change more in the future. However, variable pay programs and changes to them have not occurred without challenges.

Prior to the 1970s, the concept of the annual bonus was primarily reserved for the executive level and based on discretionary payments for accomplishing individual objectives. The need for employers to better control their fixed costs led to variable pay in the broader workforce. Organizations also saw that these programs were effective in focusing employees on critical objectives, motivating the achievement of desired results, influencing the way they performed their work, and helping to better align programs and work efforts with the organization’s mission and strategy.

What’s New?
Variable pay has been on the leading edge of one of the foremost changes in compensation philosophy since formal compensation programs were introduced. It has been driven by shrinking expenditures on salary increases, rising cost of employee benefits, and large increases in funding and expenditures on broad-based employee bonuses. Since variable pay increases do not add to, or compound, future costs and are usually dependent on performance results, companies have expanded their overall compensation investment with greater spending on variable pay.

During the past 25 years, salary increase spending has been cut in half (from 5.5 to 2.8 percent of payroll), while funding for bonuses has tripled (from 4.2 to 12.8 percent of payroll), according to AON Hewitt surveys from 1990 to 2017. Variable pay has filled the gap this created in compensation growth.

The shift in spending from salary increases to variable pay has been in parallel with the expectation that bonus programs would become much more important for achieving pay for performance. Initially, broad-based bonus programs focused mostly on organizational goals. Profit-sharing and gain-sharing plans were early examples. In recent years, there has been a drive to create a stronger line of sight in variable pay plans by incorporating greater managerial discretion and a greater focus on individual performance.

What’s Next?
Recent trends and approaches in variable pay programs show several future directions. Organizations will break away from one-size-fits-all plans to ones that have a small common enterprise-wide component and varying measures and weights intended to better measure the performance of a business unit, function or department. Calibrated plans will take the place of homogeneous plans, and we will see more winners and losers within the organization based on different levels of achievement.

Greater use of qualitative measures will also increase. Early generations of incentive plans relied heavily on quantitative measures. There is a growing recognition that critical outcomes and employee behaviors can be enticed by programs that do not use quantitative formulae. However, these qualitative measures may not be always precisely measured.

In the future, almost all variable pay programs will increase or decrease payouts based on individual performance achievement. In the next 5 to 10 years, this will become a mainstay in pay for performance plans.

Levels of spending on broad-based variable pay plans will also continue to increase as organizations expect it to continue to grow. This will most likely be the result of shifting funds from other rewards programs, such as salary growth and some benefits programs.

What’s Challenging?
Variable pay programs have their difficulties. Many organizations struggle to identify the right measures and weightings. Some have too many measures, which leads to diluting their relevance. Some have too strong a reliance on quantitative goals, where measuring outcomes qualitatively may better represent the organization’s strategic goals. And some are stuck on historical measures that have been used in the past and are unwilling to give them up.

More organizations are implementing an individual pay for performance component to their programs. But according to the recent AON Hewitt survey, employers have had no greater success in differentiating rewards by performance level than what they have experienced with their salary programs. The keys to successfully implementing a pay for performance component of variable pay plans is the quality of goal setting, manager training and accountability for differentiating, and the ability to define differences in employee performance.

Effective communication of variable pay continues to be an area of difficulty for organizations. Employees must know what is expected of them, and it should occur at the beginning of the planned year. Additionally, it is critical that employees receive feedback throughout the year. Furthermore, periodic feedback of results vs. organization-wide goals should occur at least quarterly.

Evolving Role of Variable Pay. In the past two decades, variable pay has gone from applying to only the top executives to the primary driver of pay for performance for all employees in the organization. The concepts of variable pay continue to evolve as organizations push them down further in the organization. What will not change is the growing importance of variable pay and the expectation for shaping employee behaviors and motivating the achievement of key business outcomes.

Please contact me at nlappley@lappley.com or (847) 921-2812 to discuss any comments or questions you may have regarding the implementation of variable pay programs in your organization. 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.

Contact Us
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.

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.