What happens when two of your largest customers decide to merge and, as a result of anticipated efficiencies (good for them!), they announce their intent to reduce purchases of your company's products/services by nearly 40%?
Bad for you. Particularly bad for the sales staff who have been covering both accounts, and whose chance of earning a sales incentive award has just been decimated, if not eliminated, by the event. How to react?
While the latest wave of mergers and industry consolidations may produce economic benefits for the firms involved (and, hopefully, their customers), they are also having a significant impact on the sales forces covering affected firms - and their earnings. In their most recent issue of Sales Compensation Shorts, consulting firm Colletti & Fiss discusses how best to address the impact of mergers on the compensation of sales staff. They recommend the following action steps to sustain sales force motivation and performance when the customer base is hit by merger events like the one described above:
First, regardless of what is decided about revised or new sales targets, the current plan should be "closed-out" and payments made under it through that [affected] period, e.g., through the first half of the year.
Next, sales should be reforecasted and a new, reaching yet realistic quota should be assigned. Also, consideration should be given to the performance range - threshold and excellence point - so that they too are reasonably realistic under the new quotas.
Finally, because sales lost through this merger will have to be made up by other Strategic Account Managers or sales reps, overachievement incentive opportunity should be validated as financially attractive and re-communicated as such at the time quotas are reset.
Frankly, I think this is an action plan worth considering at any time when sales opportunities are significantly impacted by an event outside the control of the sales force - which could include some regulatory changes of critical scope, natural catastrophes (e.g. Hurricane Katrina), etc. Certainly, it takes a judgment call in order to determine which outside events are worth responding to in this way and which are not; we cannot adjust sales quotas in response to every blip on a company's radar screen , but we must be mindful of the fact that nobody wins when compensation plans are no longer realistic or achievable.
Sabbaticals continue their popularity and prominance as an employee perk. Among this year's list of Fortune Magazine's Best Places to Work, there are 22 companies that offer fully paid sabbaticals, including Adobe Systems, American Express, Bain & Company, Genentech, Nike, Pricewaterhouse Coopers and Timberland.
Supporting this popular offering is an emerging area of coaching and training aimed at helping employees prepare for their sabbaticals with a targeted plan for individual growth and improvement. This week's (September 25) Herman Trend Alert, published by futurists the Herman Group, explores these sabbatical prep services and predicts that many new offerings will come forward to support sabbatical takers in making the most of their time away from work.
Results of a global survey conducted jointly by Watson Wyatt Worldwide and WorldatWork confirms that the trend toward increased use of variable (or incentive) pay to reward performance is not limited to the U.S., but is in fact a global phenomenon.
The survey shows that employers around the world are increasing the number of workers eligible for bonus or incentive pay, as illustrated in the findings below:
Percent of Employers Who Report Increasing the No. of Employees Eligible for Short-Term Incentives
In Asia-Pacific Region: 24%
In Latin America: 18%
In Europe: 17%
In the U.S.: 10%
A full report of global survey results will be published in October.
In my previous post about focal (or common) versus anniversary salary increase dates, I called attention to recent survey findings by Buck Consultants showing that over 80% of responding organizations use a focal/common date for their salary reviews - rather than employees' anniversary dates.
Reader (and prolific author in his own right) Frank Giancola responded with a comment noting one of the biggest challenges that accompanies focal date salary increases - a point worth of its own post:
As you are aware, there is one potential issue with the focal date performance increase option---employees are hired throughout the year, so some reach their first focal date with less than a year of service, which presents the employer with a choice of granting a full increase with less than a year of performance, prorating the increase for the amount of time worked in the cycle, or making the employee wait to the following cycle and plussing up the increase to account for the time over one year. All options seem to represent a less than ideal way to introduce an employee to a firm's pay for performance plan.
Are you aware of an effective way of dealing with this situation?
I can't say that I know an ideal way of addressing this situation. The approach which I see used most frequently is this one: Employees who are hired during the first three quarters of the salary increase year are awarded a prorated increase for the amount of time worked during that cycle, and employees who are hired during the last quarter (in some cases the last two months) of the salary increase year are not eligible for an increase until the following salary review date (at which time, some organizations do the "plussing up" mentioned by Frank and some do not).
It isn't perfect for all of the obvious reasons. But I haven't heard it mentioned much as a point of pain, either in speaking to my clients (typically the HR or compensation head) or in employee interviews and focus group sessions.
Has anyone out there found a better way to handle employees hired during the year under a focal/common date salary review program? Or even your experience with a different approach?
In its recently released survey on Compensation Planning for 2008, Buck Consultants examined salary management practices among the 415 surveyed organizations; in particular, the timing of annual salary reviews.
The Buck survey found that most organizations - over 80% (82.2%) - administer annual salary increases on a focal (or common) review date. This means that in most organizations, employees receive their annual salary increase on a common date such as January 1, rather than on the anniversary of their hire or promotion into their current position.
The last data I saw on increase timing, which was probably more than 5 years ago (and I no longer am able to put my hands on it), showed something much closer to an even split between the use of focal/common dates and the use of anniversary dates. So it would seem that there is a trend underfoot. And my guess is that a parallel trend exists for performance review timing, particularly as organizations work to create alignment between organizational objectives and individual performance objectives. This alignment seems to happen more smoothly when the timing of individual performance planning is in sync with (and slightly lags) organizational planning and objective setting. Not so smoothly when every employee has their own unique performance cycle.
According to the Chronicle, average bonus payments to top executives grew from $69,477 in 2005 to $142,700 in 2006.
This finding is aligned with what seems to be a growing interest among nonprofit organizations and their boards in tying executive compensation to organizational performance. To this, I would submit my observation that the nonprofit sector is not yet as experienced as the for-profit sector in developing and managing incentive pay. The design of incentive plans in nonprofit organizations must reflect considerations not present in the for-profit sector, including - but not limited to - the nature of the organization's tax-exempt mission and the increasing scrutiny of regulatory and other bodies (such as the IRS and Attorneys General) on these compensation arrangements. One case in point noted by the Chronicle is the Association of Fundraising Professionals which - as part of its professional code of ethics - prohibits members from tying their compensation directly to fundraising performance. Fundraising executives and professionals, who are also part of the increasing trend toward incentive pay, must develop and use plans that consider and focus on broader, mission-related considerations in order to comply.
I often run into resistance to the idea of active performance management from a certain group of leaders who just can't believe it's really necessary to do things like communicate goals and expectations or provide ongoing feedback. They honestly believe that people should just know; know exactly what is expected of them, know whether or not they are focusing on the right things -- and approaching them the right way.
Some leaders think everyone can hear what they are thinking. Rather than cascade a decision down through the team, they dole out cryptic directions and everyone is supposed to piece the puzzle together. Usually, these leaders are analytical and spend a lot of time turning things around in their heads, so by the time they roll out the action plan, they figure everyone must have arrived at the same conclusion. Unfortunately, when they do communicate, they tend to skip over how to gain acceptance. Because they see the conclusion so logically, they don't anticipate others may resist it.
I feel certain that many of you have happened upon this characteristic among your organization's leadership. It isn't that they are intentionally trying to undermine your performance management program; it's just that they sincerely can't appreciate why such steps would be needed. Any success stories or advice on how to best address this leadership flaw?
More Info Here Compensation consultant Ann Bares is the Managing Partner of Altura Consulting Group. Ann has more than 20 years of experience consulting with organizations in the areas of compensation and performance management.