In the wake of recent disclosures about bonus and retention payments being made at AIG and other larger companies that have received financial assistance from the federal government, a number of corporate boards at public companies are reviewing the compensation plans they have in place for their own management teams.
Sound corporate governance dictates that boards should periodically review compensation programs to make sure they are reflective of the marketplace and competition.
Given all the negative publicity surrounding this issue, should companies be running scared? Absolutely not! The number one concern should always be to attract and retain your high achievers and future stars in an organization.
When determining whether someone should be receiving a bonus and/or retention payment, one needs to ask the following questions:
· How critical is this person to the success of the organization?
· Are other people dependent on this person for their own success?
· What would happen if this person leaves? Is there someone who can take his/her place?
· Is this person a serious risk to leave?
· Do you know if the person is satisfied in the job?
· Are you working on a realistic career development path with this person?
There are plenty of reasons not to want to let a valuable manager leave. That person has important institutional knowledge and could end up at a competitor. You make a big investment in this person’s success. And it can be very expensive to replace someone.
It can cost a company up to 100 percent of salary to replace a mid to senior level manager. Hiring an executive search firm is about 30 percent of the first year’s salary and bonus. Relocation of an executive can add another 10 to 20 percent of salary. Then, add a signing bonus and possibly a higher salary than the person they are replacing, and lo and behold, it cost you a fortune to replace the person you let leave. This doesn’t even take into account the time it takes for the new hire to “get up to speed.”
Of course, there are times when it is fine to let someone leave. But compensation structures that exist in American business are built on variable compensation. Base salary, short and long term incentive compensation plans, equity, and other forms of compensation are all part of the package. That is how managers and executives get paid.
The trick is to makes sure that your plans make sense and are not in such bad taste as to offend one’s sensibilities.
Come up with a well thought out plan to identify who is worth keeping and who you let leave. When you are trying to figure all of this out, ask yourself these two questions: Will my world end of this person is no longer with my organization, and how difficult will it be to replace them?
Design your compensation plan with enough flexibility in it to reward the solid achievers, but don’t be forced to dole out money to people who don’t deserve it.
Is your compensation program designed this way?
Welcome to the Empowering Employers and The Survey Says blog by F&H Solutions Group.
The purpose of this blog is to be a resource for HR and labor relations professionals. It will give you an opportunity to become familiar with F&H Solutions Group, stay abreast of changes related to the human capital industry and develop a better understanding of the attitudes of employees and supervisors. Our blog posts are designed to be thought provoking, educational, and interactive. Things are changing very rapidly in this industry and we hope you can rely on us to be a source of information. We look forward to your comments and hope you find our content helpful. Please feel free to pass the blog link on to others who might be interested.
The case for keeping bonus and retention plans
Subscribe to:
Post Comments (Atom)
While much of your post makes good sense when designing comepnsation plans - what many firms are faced with now is how to manage with the systems they have in place and get to a point where their comp plans can evolve into something more logical.
ReplyDeleteYou mention the AIG bonus situation that dominated the public eye for a short while. Unfortunately, there was very little discussion of some important and relevant issues - primarly because the Government wanted to contiue to demonize business, the media loves to be complicit in such an endeavor and the public simply ate it up. Issues such as the importance of retaining the individuals to run the business...many argue that you could just replace them. Well, that is unlikely since the talent pool for many of these positions is very thin and for someone who could fill the position - you would certainly have to pay them more to work for a company that is truly on Government life support.
Also ignored is the fact that the some of the bonuses were paid to employees of viable - even profitable - business lines. These are people who have made a profit for the companies owners - ostensibly the tax payers - is a reward for that totally uncalled for?
What may be the most critical issue that was ignored while the AIG bonus outrage played out was the fact that many of these workers who were receiving bonuses had been working for upwards of a year for no pay. The retention deals were set up at the same time many of these employees were asked to forgo a salary for a year - which they did. So are we now asking these people to work for free?
We are headed in a dangerous direction. The overwhelming focus on employee compensation by the government, the media and ultimately by the general public is a slippery slope into class conflict on a large scale. As you outline - there is much that companies can do to rationalize their comp plans, but no matter what, once we have begun to give in to the mob mentality it only opens up more and more employees to being the subject of the "bus tours".