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Compensation Strategies: Not Having A Plan Could Break The Bank

The document discusses compensation strategies and outlines different pay components organizations can use to attract, motivate, and retain employees. It discusses using a balanced approach to compensation that considers base pay, incentive pay, long-term pay, perquisites, and benefits. The appropriate mix of these pay components depends on factors like the organization's size, industry, growth stage, and financial situation. An effective compensation philosophy balances these elements to support the organization's goals and culture.

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Seithen Jovina Teles
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© Attribution Non-Commercial (BY-NC)
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Download as PPT, PDF, TXT or read online on Scribd
24 views

Compensation Strategies: Not Having A Plan Could Break The Bank

The document discusses compensation strategies and outlines different pay components organizations can use to attract, motivate, and retain employees. It discusses using a balanced approach to compensation that considers base pay, incentive pay, long-term pay, perquisites, and benefits. The appropriate mix of these pay components depends on factors like the organization's size, industry, growth stage, and financial situation. An effective compensation philosophy balances these elements to support the organization's goals and culture.

Uploaded by

Seithen Jovina Teles
Copyright
© Attribution Non-Commercial (BY-NC)
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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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
• 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 • Employment security


• Bonuses • Advancement opportunities
• Premium pay, shift pay • Organizational support
• • Work environment
Ownership
• Title
• Cash recognition
• Organizational affiliation
• Benefits
• Work variety
• Perks • Work challenge
• Career advancement • Autonomy
• Training • Work meaningfulness
• Personal growth • Feedback
Pay with what?

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

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

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

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

• Career
– Advancement
– Personal Growth
– Training
– Employment security
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 • Small, start up, dot-com


contractor – Highly competitive
– Largest employer in the market for talent
area – Other companies raid
– Non union employees
– Most of work done under – Non-union
contract with government
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 Starting Market Mature Declining


Component Growth
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 • Small, start-up, dot-com


contractor
– Base: mod
– Base: high – Incentive: mod
– Incentive: low – Long term: high
– Long term: low – Perquisites: low
– Perquisites: low – Benefits: low
– Benefits: high
Consequences of More

• More of one thing does not solve problem


• Balance of rewards is important
• Key words
– Meaningful
– Relevant
– Timely
– Valuable
• Examples
There is no silver bullet!

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