Tag Archives: Accountable

How Do You Create an Incentive-based Compensation Plan? Seven Ideas

Situation: A CEO wants to build additional incentives into the company’s compensation plan. The objective is to add group incentives to the pay mix – to focus more attention on group performance rather than just company goals. How do you create an incentive-based compensation plan?

Advice from the CEOs:

  • The best policy is to be upfront, open, and transparent as the plan is presented.
  • Communication is the key to success, including the following bullet points:
    • Pay starts at a base which is 75th percentile – a generous base in our industry.
    • Group bonuses, which reflect the results of the group’s efforts, allow you allow to reach the 90th percentile or higher.
    • On top of this, profit sharing enables the addition of 10-20% of your base.
    • Altogether, management thinks that this is a generous package. The difference from the old system is that employees will be rewarded for making decisions which will benefit the group as well as the company – and you will be generously rewarded for this.
  • Once plans are communicated to employees 1-on-1, reinforce the message with a group presentation and open discussion at monthly company meetings.
  • Consider: significant changes in compensation may be best taken in small rather than large increments. Start with small incremental adjustments. If these are effective proceed to larger increments on a planned and open schedule. This is particularly true if the historic culture has been that we all win or lose together.
  • A downside of rewarding by team is that some will get rewarded for producing minimal results. Consider some percentage of discretionary payments to recognize and reward effort instead of pure parity within the team.
  • Consider longer-term results within the payment scheme – not just quarterly results.
  • People need to know that they are accountable. Let them know that a 75% base is reasonable but that the significant rewards will be for producing results above this level.

How Do You Manage Family in a Business? Three Approaches

Situation: The CEO of a family-owned business finds it difficult to hold family-member managers accountable. They are responsible for significant portions of the business; however, family dynamics make it hard to supervise them. How do you communicate that their responsibilities affect both the business and the family? How to you manage family in a business?

Advice from the CEOs:

  • The first issue: Why have they not been asked for accountability to date? If you don’t ask for accountability, then don’t expect them to take this on by themselves.
  • Assign one family member responsibility for developing the marketing and sales strategy for the company.
    • Change the compensation from salary to salary plus commission. Over a 6-month period, reduce the base salary to half of what this individual currently earns and tie the rest to success increasing sales.
    • Assign this person responsibility for analyzing the markets that you serve. Are there areas that the company has not tapped into yet? What can you do to make your web site up more effective at driving sales? How can you use exclusivity on select products to your advantage?
  • When was the last time that the principals of the business met to figure out what to do?
    • Set the stage: we have split the business into two divisions and have separated the financials. This gives us more flexibility as we develop the business.
    • Show them the trends of each business.
    • Show them that if the current trend continues the business will be unsustainable in X years.
    • Facilitate a discussion that will start to generate solutions.
    • If the others do not respond:
      • Tell them that you appreciate their attendance at today’s meeting.
      • Tell them that you will meet in another two days as a team. Until then you expect them to think things over and to come ready to share their ideas.
    • Do not hold the meeting in your office or conference room. Secure an off-site neutral location with a white board.
    • If you are uncomfortable facilitating this meeting hire an outside facilitator. Ask for the input of the others in selecting a facilitator and follow their recommendation. If you work with a facilitator, start with your own dilemmas to set the tone.