The Best Approach to Variable Pay
I have to be honest about something. The past couple of weeks of my life can easily be characterized as blissful, upbeat and downright thrilling! To the naked eye, one might think the levity in my step is due to summer’s dynamic and awe-inspiring energy or the fact my week long vacation is right around the corner, and to be honest while the aforementioned are very true, I must admit it has everything to do with the fact the Cleveland Cavaliers won the NBA World Championship and simultaneously made history! Like all Akron, OH natives, around 11:45pm on Sunday June 19th, I was overjoyed, filled with exuberance and simply delighted the Cavs brought my hometown a championship; however the story actually goes a little deeper for me due to my profession.
As a Compensation Professional, I am constantly observing how employee performance impacts overall company success, and sports is no exception. While basking in those final seconds of Game 7, it struck me that much of what played out over the course of 48 minutes had a lot in common with our variable pay design engagements here at Helios. Over the course of the past 10 months, I have had the pleasure of helping an early childhood education center, a cutting edge technology company, a law firm and IT Consulting firm design variable pay programs tailored specifically to the respective organization’s overarching strategy. Sitting with the heads of each of these organizations not only taught me more about the many complexities businesses are faced with in order to operate both efficiently and effectively, but I also quickly realized the essential elements that comprised each plan were practically identical to some degree regardless of industry and plan focus.
Here are the three emerging trends I am consistently seeing across all industries:
1. Mission Oriented
All incentive plans usually originate in the mind of a business leader or leadership team as a mechanism for motivating employees to drive for performance which subsequently translates into organizational success. Once the leadership team identifies the mission and the key initiatives that feed into the broader body of work, this allows for divisional and department heads to develop specific functional goals that directly align to the overall pursuit of financial and business success. No matter the leader, the industry, or organization size, each engagement always starts with a session where strategic information is shared and distilled down to its simplest format. The outcome of this meeting always sets the tone for the rest of the engagement and serves as the voice of the executive or leadership team driving the project.
2. Individual Component/Clear Line of Site
Each of the business leaders I’ve assisted in the design of their incentive plans all stress the importance of individual accountability. Traditionally, most incentive plans were aligned to a financial or company metric; however there is a shift towards plans that include a significant individual component to allow employees to drive for success and make an impact on company success in their specific role. Leadership is recognizing developing a clear line of site between employee performance and the business driver is the key to broader organizational success and employee engagement. When goals are clearly defined, meaningful, and realistic, and are effectively communicated to the employee, along with the financial opportunity, employee performance many times improves and employee engagement deepens. When employees are tied to the mission, it gives them meaning and purpose and the ability to control their financial destiny.
Cavs Playback: Individual player performance is what ultimately led the Cavs to the championship. Great coaching and key plays that took place near the end of the game helped the team actually snag the win; however prior to those critical moments taking place, the team had to establish each players’ role at the start of the season to ensure the team was successful enough to make it to and through the playoffs. Defining what each player needed to focus on to make the entire team a success was essential to the team’s success. Once each role was clearly defined, the players were able to practice and execute against their role specific goals which ultimately played a part in the team’s broader success.
3. Discretionary Component
If someone were to ask me what my favorite incentive plan feature is, I will most likely tell you it is the discretionary feature most leaders want included within their plans. Being able to adjust the final payout up or down based on the intangibles related to performance allows leadership to send the right message with regards to pay. Most of the plans I typically design, measure for actual performance, or the ‘what’, and once the measurement period comes to a conclusion, the option to adjust that award up or down captures ‘how’ the employee performed. This approach ensures there is a balance between the objective and desired behavior. This design feature allows leadership to message their overall thoughts on performance to employees to either encourage employees to continue performing and behaving in the manner in which they currently are, or to point out issues and course correct to ensure performance and leadership expectations are aligned. When top performers go above and beyond, many times the business benefits from these efforts and leadership seeks to share the success by providing additional compensation or some type of recognition award. Top performing and motivated employees will more than likely go above and beyond knowing their efforts will reap a greater monetary reward; and conversely, employees who didn’t give their full effort will feel it in their pockets when their final payout is less than what is expected. Either way, having a discretionary component lets employees know they have even greater control over their final award be it good or bad. The choice is theirs to make in terms of overall effort and expected payout.
Cavs Playback: Upon entering The Finals, each player had the opportunity to play their heart out and do everything they could to bring home the coveted ring and bragging rights to their respective city. The person who provided the most value and effort towards winning the title is typically the person who receives the Most Valuable Player award. Everyone was made aware of the opportunity well before the commencement of the finals, and everyone had the opportunity to win the title pending player performance. When the final seconds ticked off of the clock, and it was obvious the Cavs would be victorious, the experts had a chance to review who was number one for points, rebounds, assists, steals and blocks, and it was no surprise who reigned as King! While everyone had a chance to participate and win this coveted honor, only one person could be recognized…and that was the person who was the top performer!
It amazes me sometimes how much my chosen profession and life go hand in hand. In its simplest form, an organization can seek to leverage employee performance to grow and strengthen company and business results; however it is imperative a broad organizational goal be established, individual performance captured and measured, and most importantly, that the final award reflects the overall effort. I believe these plan components are essential to the success of any one plan and will result in positive outcomes for both the employee and the organization! Now; let’s play ball!!