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Compensation Strategies

Compensation Strategies. Not Having a Plan Could Break the Bank Presented by James C. Fox. 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

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Compensation Strategies

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  1. Compensation Strategies Not Having a Plan Could Break the Bank Presented by James C. Fox

  2. 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

  3. 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

  4. 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?

  5. 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?

  6. Pay with what? • Direct Financial • Money • Bonuses • Premium pay, shift pay • Ownership • Cash recognition

  7. Pay with what? • Indirect Financial • Benefits • Non cash recognition • Perquisites

  8. Pay with what? • Affiliation • Organizational support • Work environment • Organization citizenship • Title

  9. Pay with what? • Work content • Variety • Challenge • Autonomy • Meaningfulness • Feedback

  10. Pay with what? • Career • Advancement • Personal Growth • Training • Employment security

  11. 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

  12. 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 Examples

  13. 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

  14. 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

  15. 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

  16. Incentive Pay • Balanced Scorecard Approach • Financial • Operational • Customer • Learning and growth • Multiple levels of organization • Corporate • Division • Business unit • Individual

  17. 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.

  18. 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)

  19. 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)

  20. Long Term Pay * As a percent of base

  21. The Balance

  22. 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 The Balance

  23. Consequences of More • More of one thing does not solve problem • Balance of rewards is important • Key words • Meaningful • Relevant • Timely • Valuable • Examples

  24. There is no silver bullet!

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