Confessions of a Compensation Director

Hard as it may be to believe, it’s time to begin planning for 2014 incentive and commission plans. Alas, if I knew the secret to creating the perfect plan, I’d be thinking about adding to my Lamborghini collection rather than regaling you with my innermost compensation secrets.

PREMIUM RESEARCH: 2013 Internal Employee Compensation Estimator

With perfection forever out of reach, I instead offer a few staffing incentive axioms that can be the difference between success and wondering what went wrong:

• Simple, simple, simple. Resist the temptation to include anything and everything (i.e. every possible base and all known contingencies) in an incentive plan. To be effective, a compensation plan must be easily understood and administered. Focus on the ends rather than the means – revenue, gross profit dollars, gross profit % or operating unit profit rather than subjective activities or key performance indicators. A clear line of site and accurate payments equal a strong return on investment.
• Don’t forget the recruiters. Sales are the focus of most of the compensation energy and angst within and outside of the staffing industry. The leaders of the staffing pack place equal emphasis on recruiter pay. In staffing – be it light industrial, manufacturing, clerical or high-end IT or finance, a sale is not a sale until the order is filled. Organizations that effectively and efficiently source and place the best talent win. Recruiter incentives are an integral part of a top staffing company’s business strategy.
• One size never fits all. On the path to “simple, simple, simple,” be careful not to go TOO far. Not all revenue or gross profit dollars are created equal. The commission – percentage, pay frequency – should differ for sales and recruiting professionals who sell/source/place hourly manufacturing and light industrial workers versus those who sell/source/place higher-end IT and engineering consultants. Still MORE differentiation should be considered for sales professionals focused on managed service, vendor management and recruitment/business process outsourcing business. Staffing business is characterized by shorter sales cycles and lower margins. Value added (MSP, VMS, RPO) services generally have longer sales cycles and higher margins. Base-to-variable pay mix, pay frequency and how long sales and recruiting professionals are incented on transactions should align to the nature of the business.
• Move the Middle. Top producers will always produce. Challenges with marginal performers generally fall outside the scope of incentives or commissions. It’s the professionals who hover at or just below expectations that should be a primary focus of incentive plans. Compensation plans should ensure that, in order to make what they did last year, these individuals must produce a little bit more. “Moving the middle” can be the difference between your company missing its business objectives and achieving breakthrough results.

The ultimate compensation plan may be beyond our grasp. However, if your incentives are understandable, easy to administer, focused on sales AND recruiting, align to the unique aspects of your business and compel your mid-level producers to do just a little bit more, you’ll be happy, your employees will be happy and your compensation director can go Lamborghini shopping.

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