Using Compensation Management as a Tool to Recruit and Retain Top Talent

The U.S. had experienced a dramatic power shift in the workplace. It was a long, slow recovery, but the job market has turned a corner, presenting job seekers with multiple employment options. The month of February saw 7.1 million job openings across a range of industries, and the U.S. unemployment rate is 4.5% according to the U.S. Department of Labor Bureau of Labor Statistics. It’s clear that employees are taking advantage of their options.

A strong job market is great news for employees and job seekers, but it isn’t so good for employers that must compete for new talent as they struggle to retain top performers. In a PayScale 2019 Compensation Best Practices study, 66 percent of all organizations agree or strongly agree that retention is a growing concern (up from 59 percent last year).

In today’s economy, employers that fail to attract and retain talent will ultimately lose, and employers with poor retention rates will find themselves spending more time and money recruiting and training new employees than focusing on growing their business. Finding a solution (or solutions) is critical to long-term success.

Successful companies know that one way to compete for talent is to become a preferred employer, where employees are so engaged in their jobs that they aren’t interested in pursuing other opportunities. An essential element in achieving preferred employer status is a well-thought out compensation strategy. This is crucial, as compensation is one of the top three drivers of attrition.

A compensation strategy is a compass to guide disciplined pay design, administration, and governance. It will also:

  • Provide a philosophical framework for the development and management of compensation systems and policies,
  • Provide key messages to communicate with employees, and
  • Recruit top talent to meet growth and profit objectives.

When it comes to what type of compensation strategy to implement, a best practice to consider is a pay for performance philosophy. Pay for performance plans base employee pay on productivity, as opposed to hours spent on the job or at a set salary. While this can result in employees feeling less financial security, there are several advantages for both the employee and employer. If done correctly, a pay for performance structure will:

  • Promote teamwork and avoid promoting behaviors that benefit individuals to the detriment of the company or other employees,
  • Deliver compensation under a disciplined and objective structure that rewards employees,
  • Link pay levels to the performance of the individuals and the organization,
  • Use survey data and technology to analyze and understand the changing dynamics of pay for specific jobs, and
  • Design executive compensation plans that motivate and retain top talent and drive performance that creates shareholder value.

A culture without a pay for performance philosophy does not reward high performance and sets the company up for high turnover. A company that continues to reward low, average, and high performers with the same salary increase or bonus ultimately encourages high performers to look elsewhere. There is simply too much competition for talent to avoid properly rewarding high performers.

Questions? Please contact the Findley consultant you normally work with, or contact Jennifer Givens at jen.givens@findley.com, 216.875.1944.

Published on May 6, 2019

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Incentives for the Sales Force Commission Verses Bonus

Compensating the sales force operates from a basic principle: money drives behavior. Although this principle is pretty simple, incenting a sales team to sell and paying them fairly at an affordable cost can be quite the balancing act. Both commission and bonus plans play a role in attracting, motivating, and retaining sales employees, but how does a company determine which to use?

Commission Plans and the Individual

A commission plan pays the sales employee on a percentage of sales or profits that he/she brings directly to the company. The compensation pay mix for sales employees is heavily weighted through variable pay. Base salaries, if any, are often set low and commission payments account for the majority of total cash compensation. This works for the company because it limits the fixed costs; but, it only works for the individual sales team member if he/she is a successful seller.

This strategy attracts result-oriented salespeople and keeps them motivated as they are paid for each individual sale. Their commission rate is typically multiplied by sales or gross profits to determine their payout. A well-designed commission structure pays employees well without threatening company profits.

This model encourages poor performers to leave the company. However, it could also drive unwanted attrition of top performers, if a competitor is willing to pay a higher commission rate.

Bonus Plans and Team Players

Bonus plans have a role in the sales force world, too. Depending on influencing factors, such as a stable market, client base or slow growth, bonus plans can assist in retaining and motivating the sales team to sell while managing the company budget. These plans structure the pay mix with a higher fixed portion of total compensation. Typically, the base salary will encompass the majority of the employee’s total pay and is often targeted to competitive market levels. The variable portion, or bonus, is only paid out if certain company and individual targets are met.

These plans attract salespeople who want to stay with the company, build a career, and have additional duties outside of selling. With a bonus plan, incentive payments are tied to achieving specific targets at the individual and company level. The company may also build into the bonus plan metrics outside of sales, which may include achievement of strategic plans or taking part in long-term projects. This strategy promotes more of a team based approach and allows salespeople to earn a decent living if established goals aren’t achieved at target.

Commission Verses Bonus Plan Attributes Chart

Commission Verses Bonus Plan Attributes Listing

In Perspective

As you can see from the illustrations, there is not a “one size fits all” sales plan that works for every company. Linking company strategy with internal and external factors will help shape a plan that drives bottom-line success. An effective sales compensation plan can provide balance between financial needs and desires. Effective compensation plans are thought through and structured, with the appropriate pay mix of salary, commission, bonus, and other incentives. They should also be designed so that they are easily understood, implemented, and managed. Most of all, sales compensation plans need to create and promote a “win-win” for both the company and the sales force.

Questions? Contact the Findley consultant you normally work with, or Jen Givens at Jen.Givens@findley.com or 216.875.1944.

Posted December 12, 2018

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