IS YOUR ORGANIZATION’S BASE PAY ON TARGET?

In this final article in this five-part series, let’s go back to a fundamental at the initial compensation question.  Is your base pay on target?  If not, everything discussed in Parts 1 through 4 will have reduced effectiveness.

The only way to answer this basic but critically important question with a high degree of accuracy is for your organization to periodically conduct a thorough market compensation analysis.

Without such an analysis you could be either underpaying or overpaying – both of  which have unintended consequences.
A consequence example is your losing valuable talent because of their being  underpaid.

Here is what a good compensation analysis consists of:

1)   Comparing your organization’s positions to comparable positions in other organizations:

• In your industry
• Of similar size (as measured by revenue and/or number of employees)
• In the geographical area in which you would recruit for a position – be that locally, regionally or nationally

2)   Not merely look at a position’s title, but more importantly taking into account its:

• Duties and responsibilities
• Education and experience requirements
• Skills and competencies

3)   Factoring in the incumbent’s:

• Qualifications in comparison to the position’s requirements

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• Performance
• Other relevant factors

4)   Analyzing non-base pay salary

5)   Providing position-by-position, person-by-person compensation recommendations based on the analysis

HOW TRINITY CAN HELP:

• Trinity’s Team has years of experience in doing compensation analysis.
• We utilize an up-to-date, reliable data base of market compensation to expertly and economically perform a customized market analysis for your organization.

For more information:

E-mail Trinity at info@TrintyHR.net
Visit our website at www.TrinityHR.net
Call us at 856.905.1762 or toll free at 877.228.6310

You have HR challenges…Trinity Has solutions!

In Part 4 of this 5 part series, let’s take a quick look at the final 3 of these important questions.

3)     Should we also have a long‐term incentive plan (LTIP), and if for which employee groups?

• We believe that if your company that has a plan for long-term growth it should have a long term incentive plan (LTIP).  Your LTIP strategically communicates that goal to employees, along with “What Is In This For Me” — at Trinity, we believe WIIT-FM is a radio station every employee will listen to.
• An LTIP should be encompass the behaviors and results needed to be achieved if your company vision of the future is to become a reality.
• When properly structured, an LTIP  can be funded from the added value it creates — rather than being an additional expense line item.

4)     What type of long‐term plan is best?

• There are multiple forms of LTIPs, including types that enable privately-owned companies not to give up any portion of their ownership.
• Each option has its own advantages and disadvantages — depending on the objectives the organization wants to achieve. There is no one plan that is best for all companies.
  The best option for your company will be the plan type that most helps you to accomplish what you desire to.

5)     If I implement a plan, how will I know it’s been successful?

• The overarching purpose of incentive plans is to frame an organization’s financial partnership with its employees in the context of its value creation and value sharing philosophy.
  Did I hear someone say, I thought the purpose was to enhance our company’s  ability to attract top talent and motivate them so as to retain.
  Of course you want your incentive plan to do those two things—and they will as natural byproducts of incentive compensation plans are properly:
  • Designed
  • Communicated
  • Managed

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So the best way to determine the success of incentive plans is to assess if they are achieving your objectives and the accompanying byproducts.

CONCLUDING COMMENT

On the basis of what’s been written in this series of articles, the answer to the question of “do incentive plans work?” is yes – if  your properly designed, communicated and managed plans:

1) Define value creation – Effective plans reflect the company’s philosophy about what it means to create value and that incentives should be “self‐financed”; they should be paid out of the company’s increased productivity and profits.

2)     Define value sharing – Effective plans present the opportunity for employees to share in the value that they help create, through a reliable mechanism.

3)     Reinforce instead of force behavior – Effective plans don’t try to change the behavior of an employee through compensation manipulation. They are designed to reward the achievement of well‐defined outcomes within the framework of a clearly defined financial partnership.

For more information:

E-mail us at info@TrintyHR.net
Visit our website at www.TrinityHR.net
Call us at 856.905.1762 or toll free at 877.228.6310
HOW TRINITY CAN HELP:

Trinity’s Team has extensive experience in custom designing highly effective incentive compensation plans, along with a relevant, results-driven performance management system.
 

You have HR QUESTIONS…Trinity HAS ANSWERS!

In any organization’s discussion of it, there are inevitably questions that arise about incentive compensation:

1. Do incentive plans impact employee behavior in a positive manner?
2. If so, what are the essentials of a short-term incentive plan (STIP)?
3. Should we also have a long‐term incentive plan (LTIP), and if for which employee groups?
4. What type of long‐term plan is best?
5. If I implement a plan, how will I know it’s been successful?

Let’s take a quick look at the 1st two of these important questions

1) Do incentive plans impact employee behavior in a positive manner?

• A 2017 study reported in the Human Resources Management Journal states:
  Incentive pay and variable pay has become increasingly important for  motivating employees to perform productively at work. It represents one of the key elements of HRM systems aimed at achieving sustainable competitive success for an organization.”
• Additional research shows that a key factor in determining how impactful incentive pay is depends on whether the incentive plan is utilized to force changes in behavior or to reinforce behavior.

2) If so, what are the essentials of a short-term incentive plan (STIP)?

• They include the following:
  1. Identify the performance objectives you want to achieve, including a financial objective but also 2 to 3 non-financial ones
  2. Translate the objectives into Key Performance Indicators (KPIs) that are measurable & achievable, but yet stretch employees in order for achievement
  3. Establish the rewards associated with various levels of achievement
     The rewards must result in meaningful dollars.
     A common mistake is to fail to include rewards for achievement level above 100% or to undervalue the rewards for extraordinary performance.

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  4. Ensure KPIs are ones that employees can impact (called “line of sight”)
  5. Clearly communicate the plan
  6. Regularly update all participants on the status of actual performance in comparison to objectives, reinforcing the related rewards

1. Determine the right balance between guaranteed compensation (base pay) & variable compensation (incentive/bonus/commission compensation), including answering such questions as:
   If not all employees, which employee groups’ compensation should include a variable portion?
   Which employees/groups who are part of a short-term incentive plan should also participate in a long-term incentive plan?
2. Identify certain performance objectives it wants to achieve & the outcomes that will result if the objectives are attained.
3. Translate those objectives into Key Performance Indicators (KPIs)
4. Establish its rewards for KPI achievement at varying degrees of success

For more information:

• E-mail Trinity at info@TrintyHR.net
• Visit our website at www.TrinityHR.net
• Call us at 856.905.1762 or toll free at 877.228.6310

HOW TRINITY CAN HELP:

Trinity’s Team has extensive experience in custom designing highly effective incentive compensation plans, along with a relevant, results-driven performance management system.

You have OPPORTUNITIES…Trinity HAS PATHS FORWARD!

In part 1, we identified the objectives of performance-based pay. In this article, we’ll discuss the concept of a compensation philosophy.

An organization’s compensation philosophy refers to the set of guiding principles that drive decision making about compensation.  This philosophy differs from business to business, but every company seeks to hire and retain the best talent, and it will express that sentiment with the objectives section of its compensation philosophy statement.

• In Trinity’s executive and management search consulting practice, we find that candidates are often interesting in understanding a prospective employer’s compensation philosophy.

In adopting the pay part of its philosophy, every organization has to:

1. Determine the right balance between guaranteed compensation (base pay) & variable compensation (incentive/bonus/commission compensation), including answering such questions as:
   If not all employees, which employee groups’ compensation should include a variable portion?
   Which employees/groups who are part of a short-term incentive plan should also participate in a long-term incentive plan?
2. Identify certain performance objectives it wants to achieve & the outcomes that will result if the objectives are attained.
3. Translate those objectives into Key Performance Indicators (KPIs)
4. Establish its rewards for KPI achievement at varying degrees of success

SAMPLE COMPENSATION PHILOSOPHY STATEMENT

In order for ABC Company to achieve the objectives of its compensation philosophy, we provide compensation in the following forms:

1. Base pay
2. Incentive pay
3. Benefits

As part of this, ABC strives to:

BASE PAY

1. Provide base pay that is:
   • In line with the market place for like positions
   • Fair in comparison to other employees in the same or comparable role
   • Tied to performance results in comparison to goals
2. Review pay on an annual basis during its performance management process, as well as at other times when deemed appropriate
   • Target overall increases to approximate the percentage which is generally given by other employers, but creating a range of increases on an individual basis
   • In doing so, take into account appropriate financial consideration.

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3. Increase pay upon achieving of a promotion

INCENTIVE PAY (for designated positions/groups)

1. Award performance bonuses to eligible employees annually through its short-term incentive plan (STIP)
2. Provide a long-term incentive plan (LTIP) that rewards eligible employees for organizational performance over a multi-year period of time

BENEFITS

1. Offer competitive and comprehensive benefits package, consisting of:
   • Paid Time Off
   • Healthcare Benefits
   • Life Insurance & Disability Benefits
   • Retirement Benefits
2. Seek to provide employees with choices so as to enable them to select the benefits best for them based upon their personal factors
3. Absorb the vast majority of the total cost of the benefits package
   • Taking into consideration the Company’s financial capability

For more information:

• E-mail Trinity at info@TrintyHR.net
• Visit our website at www.TrinityHR.net
• Call us at 856.905.1762 or toll free at 877.228.6310

HOW TRINITY CAN HELP:

• Trinity’s Team has extensive experience in helping organizations to design highly effective compensation programs (including incentive compensation plans) and to develop a relevant, results-deiven performance management system.

You have HR questions…Trinity HAS answers!

This is the time of the year that organizations start preparing for their year-end performance evaluations and compensation.  Most organizations (small, mid-sized & large) already use a performance-based approach to compensation.

• That’s because performance-based pay has proven to be the most effective basis for rewarding employees.
• It is also an area that candidates want to know about, especially those who are part of your executive and management recruting.

If your organization is:

1. Already doing so, it’s smart to review the specifics of your approach
2. Not using this approach, it’s wise to re-evaluate why not

In this multipart series of articles, we’ll cover topics such as the following:

1. Objectives of pay for performance
2. Developing a rewards philosophy
3. Essentials of Performance-Based Pay

Objectives of Performance Based Pay

Developing a Performance Based Pay (also called Pay for Performance—Trinity prefers Pay for Results) philosophy starts with an organization clearly identifying what it wants to achieve with it.  We believe the following objectives pretty much describe the objectives of the vast majority of organizations—perhaps worded somewhat differently:

1. Recruit and retain the highest quality employees
2. Communicate and reinforce the values of the organization
3. Engage employees in the organization’s success in achieving (better yet, exceeding) its objectives related to financial and non-financial objectives

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4. Reward contributors for successful achievements
5. Differentiate rewards provided based on the importance of the contributions at three inter-related levels:
   • Individual
   • Team/Department/Division
   • Organization-wide

Your Performance Based Pay objectives should be a sub-set of your overall compensation philosophy.
MORE ON THIS SUBJECT IN PART 2.

For more information:

• E-mail Trinity at info@TrintyHR.net
• Visit our website at www.TrinityHR.net
• Call us at 856.905.1762 or toll free at 877.228.6310

HOW TRINITY CAN HELP:

• Trinity’s Team has extensive experience in helping organizations to create highly effective compensation programs, including incentive compensation plans.

You have HR CHALLENGES…Trinity HAS SOLUTIONS!