By Vistage Editor
Welcome to the final article in Vistage’s three-part series to creating and implementing an effective benefits and compensation plan. In this article, we explore the importance of implementation. Read article one here; read article two here.
You’ve mastered the strategy, you’ve set your design. Now you’re ready to move on to the third stage of creating an effective benefits and compensation plan — implementation.
According to our Vistage Speakers and compensation experts — Catherine Meek, Ron Fleisher and Karen Jorgensen — implementing a compensation plan involves following through on the key steps in the strategy and design phases, as described in the first two articles in this series.
If you’ve done your work properly in those areas, our experts say, implementation should naturally follow. However, since the unforeseen does, occasionally happen (shocker, right?) they’ve also identified a number of additional practices that can smooth the implementation process.
The following practices will “oil the gears” during the implementation process:
1. Communicate constantly. Communication begins in the design phase and continues throughout implementation. It involves two key components: education and marketing.
First, educate employees about the plan, making sure they understand why you are moving to a new compensation program and how it will affect them. More importantly, they need to understand how what they do on a daily basis impacts the organizational goals and the compensation they will receive. Without this critical “line of sight” understanding, the plan will sink faster than the Titanic.
The second aspect of communication involves marketing and selling the plan to your staff. “It’s one thing to know how the plan works, but employees also want to know what’s in it for them,” says Meek. “Constantly talk about the benefits of the plan to the organization and to employees. When they understand that their performance can positively impact their earnings, they will more readily embrace the plan.”
2. Make sure the plan creates alignment with customers, the company, and employees. According to Fleisher, a good compensation plan is designed to meet the needs of these three entities. Sales reflect whether customer needs are being met. Company needs are met by achieving financial and ROI goals, which also involves process and expense control. Finally, the compensation plan must reward employees for meeting the needs of the customers and the company. If any one of these pieces is not in place, your plan will not yield the desired results.
3. Use measurement information to keep people focused on the plan. Information empowers people to learn how the different parts of the business work together.
More importantly, information impacts your employees’ ability to meet their goals as stated in the plan. Start your new compensation program by giving employees only what they need. Then expand your scope as they begin to buy into the model.
Fleisher recommends a monthly P&L sheet for each department. This P&L should contain three elements:
- Company sales
- Department expenses
- Profit number or percentage of goal achieved
“To keep employees focused on their own areas, provide this information (and nothing else) once a month for a year,” suggests Fleisher. “Anything more will likely cause information overload and negatively affect performance. After a year, the culture should develop to where people can handle more information.”
4. Consider a bridge program. Never decrease base pay in order to put in an incentive plan. Nothing will erode the trust level quicker. (The only exception is a turnaround situation where the company must cut pay in order to survive.) Instead, consider using a bridge program that maintains trust levels while allowing employees to get used to the concept of pay for performance.
“A bridging program that combines elements of fixed pay and pay for performance allows employees to get more comfortable with variable or profitability compensation because it’s not such a shock,” explains Fleisher. “Plus, it allows you to make course corrections along the way. Test your new program for 90 days and then make adjustments as necessary. Always reserve the right to change the plan so that it benefits the customer, the company and employees.
5. Separate base pay from incentive pay. To keep a clear distinction between base pay and incentive payouts, always distribute incentives through a separate check and — if possible — at a different time than the regular paychecks.
“When employees regularly receive incentive pay along with their base pay, they begin to view it as an entitlement,” warns Jorgensen. “They forget that the incentive is variable and at-risk, which defeats the whole purpose of the incentive.”
6. Define the playing field. Getting buy-in from employees is one thing. Abdicating leadership is another. As CEO, you must define the playing field — what is appropriate behavior and what is out of bounds — and let your people define how they do things within the boundaries you set.
7. Designate a champion. The more dramatic the change from the old plan to the new, the more you need a champion to drive implementation of the plan. The champion should come from the senior management level. An alternative, suggests Meek, is to use an employee design team to champion the program.
8. Check with an experienced attorney. Compensation law is a complex field. Before making any changes to your compensation plan, seek the advice of an experienced attorney or compensation expert, especially if you’re pushing the envelope in terms of incentive programs.
9. Celebrate success. Achieving a goal counts as a win and should be celebrated appropriately. “A company is a community,” says Jorgensen. “Celebrating the accomplishment of goals gives that community a chance to come together in a non-problem solving setting to interact in a risk-free environment. Celebration also reinforces efficiency and productivity.”
As a final check before installing a new compensation plan, Fleisher recommends asking the following questions:
- Are you paying for time or productivity?
- Does your compensation program reduce the need for employee supervision or maintain it?
- Will your compensation program encourage initiative and creativity or simply reinforce the status quo?
- Does your compensation program automatically increase your fixed expenses?
- Does your compensation program reinforce company profits or simply pay for individual effort, regardless of company profitability?
Originally published: Aug 31, 2011