Posted by: Bill von Achen | October 17, 2009

Compensation and Bonuses

In our Best Practices peer group meetings on Tuesday and Wednesday of this past week, we discussed and examined the various compensation and bonus practices that each of you utilize in your respective companies.  As promised, here is a brief summary of some of the representative ‘best practices’ that were presented and discussed:

Relevant market pay comparables—Most of you rely on third-party salary surveys conducted by industry associations (A.I.M., AGC, NAW, etc.).  In addition, many of you seek anecdotal compensation information from recruiters in your respective industries, and also from salary comparison tools available through on-line job posting services.

Actual pay vs. market pay—For the most part, base compensation is pegged to prevailing market values for comparable jobs, with many of you paying at or above market medians to attract and retain the best employees. 

Basis of incentive pay—Incentive pay is typically based on the achievement of meaningful performance benchmarks.  To provide an effective incentive pay program, performance benchmarks must directly connect employee actions with the company’s goals and objectives.  That is, employees must believe that their behaviors control or influence the outcomes and results that are being rewarded.

Team incentives—In creating team incentive programs, the emphasis should not be on how to increase individual payouts (i.e., each individual’s ‘piece of the pie’), but on how to ‘make the total (incentive) pie bigger.’

Incentive pay for professional staffs—Incentive compensation isn’t just for sales people any more.  Many of you have implemented some form of incentive compensation for professional staff members, with an emphasis on increasing their participation in the development of new business opportunities.  

Longevity incentivesSome positions (especially entry-level positions) may experience higher than average turnover rates.  To help combat turnover, consider offering longevity bonuses to employees who achieve specific time-in-grade.  This approach can result in more experienced, and more cost-effective employees in these positions, and can drive profitability.

Advancement programs—Certain employees can demonstrate increased proficiency in their jobs by achieving professional credentials from industry associations and third parties.  Linking specific increases in pay to achievement of such credentials gives employees greater control over their earning potential.

I’ve also attached to this message a copy of my PowerPoint slide deck, which offered a framework for thinking about compensation strategies in your companies.  I hope that you find the information helpful.

In the meantime, thanks to everyone for your contributions to the discussion.  And please feel free to post additional suggestions on the Best Practices Boards listserve.

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