Post on 28-Dec-2015
Strategy and Pay
• Pay is a reward for behavior• How and what you pay should
support what you want to reward• Pay also needs to reflect who you
are as an organization• Pay should reflect the situation that
your company is in
You get what you pay for
• Internal focus vs. external focus• Focus on products vs focus on
services• Focus on fairness vs. focus on
competitiveness• Focus on risks vs. focus on no errors
You pay what you have
• Small fish in big pond or big fish in a small pond?
• One of a kind, or one of many?• Organized or “un” organized?• Lay offs or full employment?
Pay with what?
• Money• Bonuses• Premium pay, shift pay• Ownership• Cash recognition• Benefits• Perks• Career advancement• Training• Personal growth
• Employment security• Advancement
opportunities• Organizational support• Work environment• Title• Organizational affiliation• Work variety• Work challenge• Autonomy• Work meaningfulness• Feedback
Pay with what?
• Direct Financial– Money– Bonuses– Premium pay, shift pay– Ownership– Cash recognition
Pay with what?
• Affiliation– Organizational support– Work environment– Organization citizenship– Title
Balance
• Your compensation philosophy and the kind of company will lead you to answers on how to balance each of these compensation vehicles
• You may “underpay” in one area, but “over” pay in another
Examples
• Large government contractor– Largest employer in
the area– Non union– Most of work done
under contract with government
• Small, start up, dot-com– Highly competitive
market for talent– Other companies
raid employees– Non-union
Base Pay
• Base pay should be considered the price you pay for membership to the club
• It ensures you that the employee– will show up at work– that you may call them at night or
weekends with business questions– that you can send them out of town and
disrupt their personal life
Base Pay
• Must be within 5% of market to be competitive
• Most companies highlight the 50th percentile
• Some companies will target the 75th percentile
• Lately, companies are targeting the 60th percentile
Incentive Pay
• The price you pay to get employees focused on what is important to the company.– Addresses motivation and reward for achieving
a pre set goal– Should be related to critical areas that the
employee can impact– “line of sight” should be direct– Should consist of no more than 3-5 goals– Simple and measurable is best
Incentive Pay
• Balanced Scorecard Approach– Financial– Operational– Customer– Learning and growth
• Multiple levels of organization– Corporate– Division– Business unit– Individual
Incentive Pay Targets
• Top Executives 50-100% of base• VPs and Directors 30-50% of base• Mid-Management 20-30% of base• Supervisors 10-20% of base• Others 0-10% of base
• Needs to be at least 5% of base to have an impact.
Long Term Pay
• The price you pay to retain employees– Addresses long term security– Should tie individual to the company’s
future– Should be tied to the growth of the
company over time– Spans multiple years (3-5 or longer)
Long Term Pay
• Stock options for public companies• Phantom stock for public and private
companies• Long term incentive plans for public
and private companies• Traditionally tied to value of the
company, or some long term goal (achieving $X in gross revenues)
Long Term Pay
Level Grant value* Est. Future value*
Executive 60-100% 30%
Director 50-70% 25%
Manager 30-50% 20%
* As a percent of base
The Balance
Pay Component
Starting Market Growth
Mature Declining
Base Low Mod High High
Incentive Low Mod High Mod
Long term High High Mod Low
Perquisites Low Mod Mod High
Benefits Low Low Mod High
The Balance
• Large government contractor
– Base: high– Incentive: low– Long term: low– Perquisites: low– Benefits: high
• Small, start-up, dot-com
– Base: mod– Incentive: mod– Long term: high– Perquisites: low– Benefits: low
Consequences of More
• More of one thing does not solve problem
• Balance of rewards is important• Key words
– Meaningful– Relevant– Timely– Valuable
• Examples