Compensation Dentistry
We all love going to the dentist when we know our teeth are doing great. The free toothbrush, that just-cleaned feeling, and those slippery teeth. When we brush and floss every day, we leave with an even brighter smile than when we walked in. But none of us love leaving with the early warning of a new "almost" cavity, or the heads up that our wisdom will need to be addressed in the next year or two. Knowing that something is difficult is up ahead, often makes us avoid the next visit.
The funny thing is getting that little cavity or other problem fixed quickly usually doesn’t hurt and lets you focus on better things down the road. Compensation programs can often be the same.
Most of us do our regular maintenance and keep our base pay in line with our philosophy and relevant data. We make small adjustments all year when new information becomes available. About once each year we go through and clean everything and get it back in order. While the process is seldom as fun as going to an amusement park, it isn’t that big a deal.
Annual and long-term incentive plans are often not as well cared for. We don’t adjust them on the fly. We don’t re-communicate them regularly. They just exist and perform as designed and we may not dig back into them more than every couple or three years. Because we do not give them the attention they deserve, we often dread learning how much work it will take to update them.
Then there are the real issues. Sometimes we just have a gut feeling or a sneaking suspicion that something isn’t right. Other times we have been warned by managers or staff that a program is ineffective, or worse. It is the rare compensation professional who gets excited about these impending issues. Just like the fact that most kids don’t grow up wishing to be a dentist, few compensation professionals aspire to be mavens of incentive plans.
Yes, incentive plans can be harder than base pay. This is largely because they have more moving parts. They also play vastly different roles in each companies compensation philosophy and in each individual’s total rewards package. It is this customizability that gives incentives their power and makes some avoid them.
Over the next few weeks, I will be writing articles that discuss the brushing, flossing, and problem avoidance issues that can ensure more effective plans and more enjoyable visits from your friendly incentive compensation professional. In the meantime, start putting some notes together. When is the last time you reviewed the metrics used for each plan? When is the last time you analyzed the goal levels and their association to payout leverage? When was the last time you provided an effective communication for each plan? The scorecard you create over the next few weeks will allow you happier compensation dentistry visits in the future.
Dan Walter is a CECP, CEP, and Fellow of Global Equity (FGE). He works as Managing Consultant for FutureSense. He is a leading expert on incentive plan and equity compensation issues and has written several industry resources including the only resource dedicated to Performance-Based Equity Compensation. He has co-authored ”Everything You Do In Compensation is Communication”, , “Equity Alternatives” and other books. Connect with Dan on LinkedIn. Or, follow him on Twitter at @DanFutureSense.