I’ve developed incentive compensation plans for more than 500 companies over the last 27 years. It always has interested me how some companies get far better results from the changed compensation plans than others, especially when using similar compensation approaches. Companies, like people, have particular personalities, and, also like people, they can get in their own way. Changing a compensation plan will not automatically change other aspects of a company that may be hindering their success. Conversely, a company who already manifests successful characteristics is much more likely to experience the full benefit of a new compensation plan.
Changing compensation is not an easy task. People don’t like change, especially when it comes to their pay, so it’s important to be clear about WHY changes are being made. It’s also crucial to have realistic expectations about what changing compensation can and cannot improve in an organization.
Here are some important questions to consider before embarking on a change to your compensation plan:
Are you looking for a “magic wand” to solve all your problems?
Are you trying to solve poor hiring – people in the wrong roles?
Are you hoping compensation will alleviate the need for training?
Are you trying to prop up poor leadership?
Are you trying to mitigate a toxic culture?
Are you using compensation to “manage” your people in place of proper oversight?
Are you chasing a “shiny object” because you heard someone else talk about their success?
If any of these questions hit close to home, embarking on a change to your compensation plan is going to lead to disappointment at best, and disgruntled employees at worst.
What you CAN get from embarking on a project to change your compensation plan can be immensely valuable if it is approached in the right way, such as:
Learning diverse ways to compensate people beyond simple commissions; more tools in your tool kit means you can know how to use the right tool for the right situation
Improved clarity on organization structure and role definitions
Leadership alignment on priorities and compensation trade off decisions (you cannot do or compensate for everything)
Common language for talking about compensation so future discussions are easier and follow standard design practices
Understanding of market-level pay and agreement among leadership about your company’s desired position in the market
Improved understanding of company economics and clarity on business goals
Agreement on realistic goals for the company and individuals
Clarity for employees on performance expectations – what does “good” look like?
Balance between financial and strategic priorities
Balance between individual performance and teamwork
Mitigation of hyper-competitive culture and/or improve individual accountability
Flexibility in plan design options to allow for easier future changes
The NUMBER ONE criterion for success of any incentive compensation plan change is leadership involvement. Leaders who have participated and learned throughout the design process become excellent coaches, helping employees maximize their success under the new plans. Leaders who follow up after the plans have been rolled out and use every payday as an opportunity to check in with employees to ensure they understand the plans have engaged and enthusiastic teams who are “working” the new comp plans. Leaders who are cheerleaders looking for ways to help their employees succeed under the new plan rather than loopholes to avoid payment build a collaborative rather than adversarial relationship with their employees.