Post on 20-May-2020
SixCompensationMistakesBethCarroll|Prosperio Group
Agenda
• BriefIntroductiontoProsperioGroup
• ReviewSixCommonCompensationMistakes
• Q&A
IntroductiontoProsperioGroup
ProsperiohelpsSupplyChaincompaniesusecompensationstrategicallytodriveprofitablegrowth
BusinessObjectives&Strategy Organization
Structure&Roles
Hiring,Training&
Development
ProcessManagement&
Execution
Compensation
SupplyChainExperience:l WeareorhavebeenmembersoftheTIA,TCA,TMSA,NCBFAA,NITL,IANA,IWLA,
WERC,NASTC,AFA,andtheCSCMP.
l WehavepublishedarticlesspecificallyoncompensationfortheT&LindustryinTheLogisticsJournal,Overdrive,TheSupplyChainQuarterly,andhavegivennumerousspeechesandwebinars.
l BethCarrollistheChairoftheTIACompensationSurveyCommitteeandparticipatesontheTIAFoundationBoard.
l Wehaveworkedwithcompanieswhoprovidethefollowingservices:
l Non-assetbasedtruckbrokerage(allmodes)
l Contracted3PLservices(freightmanagement,consolidation,deconsolidation,supplychainoptimizationandsupport)
l Trucking
l Movingandstorage
l Oceanfreightshipping(FCL,LCL,freightforwarding)
l Intermodal
l Warehousing
l Weworkglobally,havingcompletedengagementsin8countriesforcompanieswithemployeesworkingin39countries.
ProsperioGroupalsoprovides:
• SalesCompensationConsultingacrossallindustries
• Broad-basedCompensationandPerformanceManagementConsulting
• CustomCompensationandBenefitsSurveyDevelopmentandAdministration
Wehaveextensiveexperienceacrossindustries,buttheclearfocusisSupplyChain/Transportation
Somecompaniesarerepresentedinmorethanonesegment
151
22
12
8
8
86
5 3 2
1 1 111
DISTRIBUTIONOFINDUSTRIESSERVED
Transportation
Manufacturing
Food&Beverage
ProfessionalServices
Software
Banking/Insurance
Energy
Medical/Health
Distribution
Telecom
FinancialServices
Waste
Hospitality
Marketing
Printing
110
2530
18
16
47
318
TransportationCompaniesbySegment
Brokers
Freight Forwarders
3PL/FreightMgmt/OutsourcingOcean/Air Asset & NVOCC
Other T&L
Commercial Trucking
Private Fleet Trucking200ClientsarefromBeth’s20yearcareerasabusinessandcompensationconsultant;
41from10yrswithTowersWatsonand159from10yrswithCygnalandProsperioGroup.
Wehaveworkedwithstart-upsaswellasindustryleaders
9
28
33
51
35
21
45
11
0-$2m $2m-$10m $10m-$25m $25m-$100m $100m-$500m $500m-$1b $1b-$10b >$10b
DistributionofClientsbySize(usingRevenue)
We’veworkedwith151T&Lcompaniesinthelast10years,andmanyother“generalindustry”companiesinthelast20years
T&LCompanies: TruckingCo's OtherIndustries:Brokers v ABFFreightv ABFMultimodal v MajesticTransportation v BarneyTrucking Banking/Insurance Manufacturingv AMTransport v OverdriveLogistics v BarberTransportation v BankofAmerica v AMCOLAsiaMineralsv Ameri-CoLogistics v PepsiLogisticsCompany v BennettInternationalGroup /MBNAMerger (Thailand,China)v BartonLogistics v PinnacleFreight v BrownIntegratedLogistics v FifthThirdBank v AMCOLPaper(UK)v BeckerLogistics v RyderFreightManagementGroup v CalArk v PNC v AMCOLAustraliaPtyv BlakemanTransportation v TandemLogistics,Inc. v Con-wayFreight/Truckload v USBank (Australia)v BlueRibbonTransport v TaylorDistributing v GallanoTrucking Food&Beverage v AMCOLHQ,HPC,v BM2 v TrinityTransport v HillBrothersTransportation v CaitoFoods Bio-Ag,MPGv BNSFLogistics v TrafficTech v Nussbaum v ED&FMan v BoschAutomotivev BreckLogistics v TrekFreight v Pride v Kalsec v BoschPowerToolsv BurrisLogistics v TuckerWorldwide v RoehlTransport v PerdueFarms v CETCOLiningTechnologiesv CargoBarn v USXpress v SAIALTL v Solae v Dur-A-Flexv ChoptankTransport v ZMac v SecureLandTransport v WellsDairy(Co-Op) v ElsterSolutionsv CMTS v USXpress Healthcare v HermanMillerv CRSTLogistics Standalone3PLs(FreightMgmt) v ExpressScripts v Kohlerv DARTAdvantageLogistics v Kingsgate PrivateFleets v StrykerNavigation v Poly-Onev DesMoinesTruckBrokers v Land-LinkTrafficSystems v CozzziniBros v Trustmark v Siegel-Robertv DoverServices v M33 v EastPenn v CapitalBC/BSPA v WilliamsAdvancedv EagleTransportation v SheerTrans v Havertys ProfessionalServices Materials(Taiwan)v EnterpriseTruckBrokers v SunsetTransportation v McLaneFoodService v Martizv FastmoreLogistics v UniversalTrafficService(UTS) v SoutheastFrozenFoods v Today'sStaffing NotforProfitv FetchLogistics v Wegmans Software v CONNStepv GlenRoseTransportation FreightForwarders v USFoods v DealerTrack v TCAv GlobalTranz v ABFGlobal v Reynolds&Reynolds v TIAv GTO2000 v APLLogisticsGlobalSales(Singapore) 4PL,SupplyChainorSpecialized Otherv IntegrityLogistics v HannicFreightForwarders v APLLogistics v Comcastv JHRoseLogistics v PantherExpedited v LegacySupplyChain v IrvingOilv Kenco v RedArrowLogistics v MENLO v PSEGv L&LFreightService,Inc. v SprintForwarders v PenskeLogistics v Starwoodv Landstar v TrinetTransportation(Canada) v SterlingTransportation v WasteManagementv LogisticsGroupInternational v TimeLogistics
Transportationcompanieshavemanyrolesthatbenefitfromsoundincentivedesignpractices,herearejustafew…
Trucking/Delivery Brokerage,FreightForwarder 3PL, Int’lLogistics
Drivers(Regional,Team,Solo)DriverSupervisor/ManagerContractorRelationsOutside SalesDriverRecruiterLoad PlannerDispatcherCustomerServiceKeyAccountManagerOwnerOperatorManagersOpsManagerSalesManagerWeigh&ReweighAnalyst/ManagerTireManagerTransportationSupervisor/ManagerLinehaulClerk/Supervisor/ManagerOperationsSupervisor/ManagerTrainingSpecialistMaintenanceManagerShopSupervisorSecurityInvestigatorClaimsPreventionManagerPackagingEngineerOfficeSystemsSpecialistTerminalClerkBranchManagerInsideSales
OutsideSalesFreight FinderAccountManagerTruckFinderInsideSalesTeamLeaderOpsManagerBranchManagerSalesManagerTerritoryManagerVertical DirectorLogisticsProfessionalNetworkLoadPlannersAgentLoadPlannersTruckloadPlannersFlatbedPlannersCarrierRelationsGlobalForwardingAgentStationManagerTrackandTraceOrderEntryGlobalForwardingManagerPricingManagerA/RClerkA/PClerk
Outside SalesInsideSalesLeadGeneration/AptSettingRolesPricing/SalesSupportCustomerServiceOperationsTeamLeaderOps ManagerSalesManagerAuditSpecialistBusinessUnitLeader
Wehavedevelopedincentiveplansforalloftheseroles…andmore.
ProsperioGroupadministersthebiggestcustomtransportationintermediarycompensationsurvey
• MeasureUpSurveys™representsthelargeston-linecompensationsurveyfor3PLs;ourneweditionisjustcompletedandhas:• 5,500+Incumbents• 80+participatingcompanies• 44+positionswithreportabledata
• Dataisreportedfor4experiencelevels(Entry,Intermediate,Advanced,andSenior),plusaconsolidatedcategory
• Datacanbesegmentedbygeographicregionandcompanysizeandspecialization,wherereportedstatisticsallow
• Seehttps://prosperiogroup.com/what-we-do/products/measure/ formoreinfo
• Wealsohavesurveydatafortruckdrivers,driverrecruiters,mechanics,forkliftoperators,selectorsandfreightforwarders.
SixFatalCompensationMistakes
Thevarietyofincentivecompensationplansusedbycompaniestodayismindboggling…StraightcommissionplansGoal-basedincentiveplansBountiesTeam-basedincentivesIndividualincentivesShort-termincentivesLong-termincentivesPiecerateorcomponentplansMileageorhourlyplansSafetyorperformancebonusesProductivitystandardplansEtc.
However,therearesixfatalsalescompensationmistakescompaniesmake
1. Notrealizingthatincentivecompensationispartofacomplexandinterconnectedsystem
2. Thinkingthatincentivecompensationisonlyaboutmoney
3. Notthinkingaboutunintendedconsequences4. Payingtransactionallyandexpectingtogetgrowth5. Thinkingthateverythingyoudoislegal6. Nottakingitseriouslyandfollowingthrough
#1– IncentivecompensationisonepartofaBIGPICTURE;designinginisolationisaHUGEmistake
Yourincentiveplansmustbealignedwithandsupportyour…
• BusinessObjectives&Strategy• OrganizationStructure&Roles• CompanyCulture• DesiredPositionintheLaborMarket
• Youneedtodefinethesethingsbefore evenconsideringacommissionormileagerate!
BusinessObjectives&Strategy Organization
Structure&Roles
CompanyCulture
DesiredPositionintheLaborMarket
Compensation
#2– Incentivecompensationisaboutmorethanmoney
EmployeesexpecttobepaidHowyouchoosetodeliverthatpaysendspowerfulmessagesaboutwhatthecompanydesiresandvaluesConsiderthesetwoalternativesforpayingsalesreps:
• CompanyA:100%salarywithdiscretionaryyear-endbonus• CompanyB:100%commissionwithstrictrulesaboutclawbacksanda“charge”totheemployeewhensupportresourcesareadded
Whatimpressiondoyouhaveaboutthesetwocompaniesfromjusttheircompensationplans?Whatdoesyourplansayaboutyou?
Focusingtoomuchon“fair”oftenmissesthepoint…• Anemployeeshouldnotgetanincentiveforeverythingtheydo;creditsplittingandadministrationcanbecomeanightmare!
• Reconcilingadjustmentstothepennyisverylikelyawasteoftime,moneyandmotivation(besureyouknowwhatyouarelosing!)
#3– Incentivecompensationdesignisaconstrainedoptimizationproblem;therearerisks!
Foreverygaininanincentivecompensationplan,thereisacorrespondinglossFindingtherightbalanceforyourcompanytakesconsiderablethoughtandWORK• Ifyouthinkincentivecompensationiseasyor
thatanyonehasamagicanswerthatworksforeveryone,youaredeludingyourself
Youalsoneedtothinkabouthowyourbusinesswillchangein5,10,15yrs…areyousettingyourselfupforfutureproblemswiththeplansyouareusingnow?• Hint:ifyouareusinganannuityschemewith
yoursalesrepsorateam-basedpool,theanswerisYES
• Hint:ifyouarelettingeachterminalorDCdeterminetheirownmethodforpayingdriversorwarehouseworkers,theanswerisYES
Gain Lose
Long-TermFocus
StrategicEmphasis
TeamWork
CompanyProfits
Short-TermFocus
FinancialEmphasis
IndividualMotivation
HighPayouts
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CommissionPaid
MonthlyGrossMargin
Retroactive Marginal FlatRate
Bottom Top-$ 9,999$ 0.00% 0.00%
10,000$ 15,999$ 2.00% 5.50%16,000$ 19,999$ 3.00% 7.00%20,000$ 24,999$ 3.50% 8.00%25,000$ 29,999$ 4.00% 8.50%30,000$ 34,999$ 4.50% 9.00%35,000$ 39,999$ 5.00% 9.50%40,000$ 5.50% 10.00%
MonthlyMargin RetroactiveRate
MarginalRate
FlatRate=3.5%
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$2,000
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Commiss
ionPaid
MonthlyGrossMargin
Retroactive FlatRate
Bottom Top-$ 9,999$ 0.00%
10,000$ 15,999$ 2.00%16,000$ 19,999$ 3.00%20,000$ 24,999$ 3.50%25,000$ 29,999$ 4.00%30,000$ 34,999$ 4.50%35,000$ 39,999$ 5.00%40,000$ 5.50%
MonthlyMargin RetroactiveRate
FlatRate=3.5%
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$0 $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000
Commiss
ionPaid
MonthlyGrossMargin
FlatRate
Flatrateshavenoacceleration
• Theonlywaytodoublepayisdoubleproduction
Retroactiveratesareeasytocalculatebutmaycreateoddeconomics
• Itdrivesemployeestoreachthebottomofthenewtier,andmayevenpushthemtounethicalbehavior
• Thecompanylosesmoneyontheloadthatpaysthenewrate
Marginalratesaremorecomplicatedtoexplain,butoftenprovidethebesteconomiccontrolforthecompanyandbestmotivationalvaluefortheemployee
Notethatthepaycurvescanbedesignedtoprovideexactlythesamepayoutattargetperformance(inthiscase$22,000provides$770inpayinallthreemethods)
Thisisanexampleonlyandshouldnotbeusedtodrawanyconclusionsaboutthe“right”monthlymarginproductionpermonthorthe“right”payoutforagivenproduction– thesedecisionsdependonavarietyoffactors,includingcompanytypeoffreight,howmuchiscomingfromsalaryandotherelements(forsome$770amonthonthisincentivewouldbeverylittle,forothersitwouldbealot).ThereisNOrightanswerforallcompanies,andrarelyevenarightanswerthatworksforanytwocompanies.
#4– “MORE”isnotagoal;payingtransactionallyonlytellspeopletodo“more”
#4– Usinggoals,andpayingagainstagoal,makesthegrowthimperativecrystalclear
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NoThreshold(1:1) 50-150_2.5x
A1:1linearincentive(straightline)approximatesaflatcommissionwhileallowingfordifferentgoals
• Theonlywaytodoublepayistodoubleyourperformance
Mostmulti-linearincentiveplanshave3lines• ThresholdtoTarget• TargettoExcellence• AboveExcellence• Thisallowsyoutoscale
payoutstorewardtopperformersmore(andpayunderperformersless)basedonrelativegoalattainment
Thewayyoufigure%ofincentiveearnedisbyusingy=mx+b• Y=amountpaid• M=slopeoftheline• X=%ofgoalattained• B=Yintercept• Youcanalsointerpolate
usingtheslope
Howtointerpolate:Usetheslopeofthelineformula.ChangeinYvaluesdividedbychangeinXvalues.(Y2– Y1dividedbyX2– X1)
ToautomateyouwoulduseExcel’sslopeandinterceptformulas
(100– 25/100– 50)=1.5%ofincentiveforeach1%ofquota
(250– 100/150– 100)=3.0%ofincentiveforeach1%ofquota
Slopeisusually½oftheratepriortoExcellence
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NoThreshold(1:1)
#5– Believeitornot…thereARElawsaboutcompensation(beyondExempt/Non-ExemptandCADriverHourlyRegs)Insomestates,youcannot“holdback”partofanearnedincentivetoafuturedateasameansofretention(CA,NY,areCTareespeciallyparticularaboutincentivelaws)
• Purgetheword“holdback”fromyourvocabulary- NOW• Rephrasesothatincentivesarenotearneduntilthefuturedatetriggerevent(e.g.,collecting
money,clearingadjustments,payoutsarecalculated,etc.)• Onceanincentiveisearned,itneedstobepaidtotherep;theyhavealegalrighttothat
moneyassoonasyousaytheyhave“earned”it…eveniftheyleavethecompany!• Evenso…recentlegislationinMarylandandIllinoisruledthatcommissionsonbookedsales
werepayabletotherepevenaftertermination,evenwhentheplandocumentstatedthatcommissionswerenotearneduntilmoneywascollectedfromthecustomer
CaliforniaAB1396,whichwentintoeffectJanuary1,2013,requiresallcommissionplanstobeinwritingwithasignedcopygiventoeachemployee
• LackofcompliancecouldbeabasisforalawsuitunderCalifornia’sPrivateAttorneyGeneralAct(PAGA)andUnfairCompetitionLaw
• Notethata“Commission”isnotthesamethingasa“GoalBasedBonus”;CAdefinesacommissionas“compensationpaidtoanypersonforservicesrenderedinthesaleofanemployer’spropertyorservicesandbasedproportionately upontheamountorvaluethereof”
l Because“commissions”triggersuchlegalscrutiny,werecommendavoidingtheword“commission”altogetherandinsteadusingtheword“INCENTIVES”whentalkingaboutanyvariablecompensation
#6– Youcan’t“half-ass”yourcompensationplanandexpectittowork100%foryouWe’veworkedwithhundredsofcompanieshelpingthemdevelopnewincentivecompensationplans
successdependsononethingandonethingonly…YOU NEEDTOOWN YOURCOMPENSATIONPLAN
Thismeansthatyou(andyourleadershipteam)…• Understandit…ALLOFITandALLOFITSIMPLICATIONS• Knowwhyitisthewayitis…youknowthetradeoffdecisionsmadeandcanexplainthese
decisionstoothers(noplanisperfect)• Knowwhatdataisneededtosupportitandhaveresourcestogetthedataregularly• Havetestedthedataagainsthistoricaldatasoyouknowwhattypeofpayoutstoexpectbothin
aggregateandforeachindividualandatdifferentlevelsofperformance(low/high)• Usecarewhensettinggoals– thispartespeciallycannotbehalf-assedoryouwillblowupyour
planeconomicsandthencomebackandtellustheplanis“broken”,whenitisn’t…thegoalsare!• Havecommunicateditthoroughlytoyourstaff,withexamples• Provideregularreportsonprogressandcoachstaffonhowtoimproveperformance• Don’tchangeitatthedropofahatorwithoutadequatedataorresearch– useSOPguidelinesfor
on-goingstrategicmanagement(wecangiveyouasample)