July 25, 2010

Catching Up with the Economy: How to Prepare for a Compensation Plan Re-Design

Up, down, emerging and disappearing – these are the movements that most markets are dealing with these days. Is your company keeping up with all of the changes, and addressing the resulting wake of new employee compensation challenges? With the fast pace at which markets and industries are transforming, likely not. How can you get your talent strategy in line with your current business priorities?

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The following eight steps will provide a guide to assessing your current compensation philosophy and getting it up-to-date with your company’s business objectives.

How Do I Design a Compensation Plan that Is Aligned with Company Objectives?

1. Know your business. What is your company’s business plan? I had the opportunity to attend a full-day strategic planning class that was held here in Seattle, Washington. There was a key point made by one of the presenters: “There’s a difference between business acumen and knowing your business.” You may have a business school background and education, you may know all of the terms and be able to calculate all of your ratios but the important thing about having that business knowledge is that you know your business. You can then take that knowledge and apply it to your business strategy. You need to read your balance sheet, your income statement, your cash flow statement and more.

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If you are in the non-profit sector or you work for the government, this information will be used a little differently. You’ll need to adapt it to what makes sense for you. But, for those of you in business, and this may be a little bit different if you’re in a privately held company, you really want to know, “What is the state of the company? Where’s the cash coming and going? Are we making any money? Are we profitable? Which segments of the business are profitable? Which are not profitable?”

You want to really understand what is going on with your company’s financial future. I’m hopeful that many of you have employee meetings where this information is shared. I’m talking about the deeper dive than that. This further research is necessary because what we share with employees and what our key leaders know about the financial strength of the company are probably different. And, we need to make sure that we have the level of detail needed to design smart compensation programs.

2. Talk to your business leaders about where the business is going in the next year, five years and ten years. “Where are we headed? What new markets are we going into? What new products are we going to launch? What are our profitability goals over the next five years?” Ask these questions. Be interested. If you are interested I am certain that there will be an interest in sharing that information with you, or maybe not. Everything that I say is important to take in the context of your organization. Nine times out of ten, I would guess that your business leaders would be more than willing to share that information with you.

3. If you don’t understand something, ask someone. Even if you need to ask Google, ask. Google is a great tool. It’s critical that if someone says something to you that you don’t understand that you really look into it. Once a colleague of mine, who considered himself a savvy business professional had his CFO say to him, “You know what? We need to reduce the working capital next year.” He replied, “Oh, yeah, sure. No problem.” Then he went back to his office and looked up “working capital” on Google quickly so he’d actually know what to do.

It’s an amazing time in our history. Access to information is unlimited. Use it to your advantage to make sure you are smart about what terms people are using and what they are talking about.

4. Think through the implications of the business plan on talent in your organization. Our role as HR professionals is to take all of that information we have about where the business is going and think about the implications on talent. “If we’re going into new markets, what’s the recruiting strategy? If we’re going to be experiencing rapid growth, what’s our succession planning strategy? If we’re going to be growing internationally, how are we going to maintain company culture and maintain the workforce in an international location?”

Think through those questions. Take whatever senior leaders say to you about the business plan and priorities and then ask, “What does this matter to me?” as the steward or guardian of the human resources in the organization.

5. Know where you stand relative to your current compensation philosophy. When was the last time that you benchmarked? Do you have a sense for where you sit in the market? Do you know where your weak spots are and where you’ve had trouble recruiting? Make sure that you understand what your current compensation philosophy is getting you and how far off the mark you may be from where you say you are.

6. Use employee feedback. I know that employee feedback isn't always valued because we all know that if you ask employees if they are overpaid, or paid enough, their answer will likely always be “no.” So, that’s not the right measure. But, pay careful attention to difficult-to-recruit positions, or when people aren’t willing to promote to the next level. Keep an overall sense of the comments you’re hearing relative to pay.

7. Meet with senior leadership. Ask senior leaders for permission to align talent strategies with business priorities. When you say it in that way, it’s really hard for them to say “no.” You could ask, “Can I have permission to align our talent strategies more closely with our business strategies over the next few years?” They’ll likely answer “yes,” though they may not realize everything that they have committed to. But, at the same time, you have to have an overall goal and seek that permission to be able to take first steps.

8. Ask for the resources you need to get the project started. To get started, you could need some financial investment or human resource investment. But, if you have a clear understanding of what it is that you want to do, and know some of what that may look like, it’s going to be a lot easier to get resources than if you walk in and say, “We have to do this.”

Regards,

Stacey Carroll
Director of Customer Service and Education
PayScale.com

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