Why a New Compensation Plan is like Starting a new Business

August 29, 2012

Starting a new business and developing a successful compensation system are a lot alike. There are several fundamental principles that you have to keep in mind:

1. Do your thing

What's right for your company is not the same as what anyone else is doing! When managing compensation we like to know that we are in good company; that we pay more or less the same as our competitors. But tying an organization and not just in compensation, too closely to the market median without adjusting for its own unique element will inevitably lead to the organization becoming median too - resulting in mediocre performance. Adapting to your own needs and circumstances will help differentiate and stand out from the beige!

"Doing your thing", the thing that's right for you should also intuitively, mean being cautious of the "next big thing". Following the latest fad or new idea without a specific challenge in your company that it directly responds to can be fraught with long term difficulties and potentially damage your employment brand.

2. No shortcuts

Take the time to do things right. Launching a successful compensation program like a new company or product, takes time and effort. Take the necessary time to get it right even if it means missing a deadline. Launching a near perfect plan will mean a greater chance of success and establish your reputation with your employees and potential employees, as an organization that does things well - it will pay dividends in the long run.

3. Do one thing

Whatever it is do it really well and then do the next thing really well. Don't try to be all things to all people all at once. Don't launch a new sales compensation program at the same time that you are designing a new equity plan. One will suffer. Identify the expertise you have in house and what you will need to bring in to complete the project. 

We've talked about not taking shortcuts but this lesson is about where necessary, taking the long road to do the thing you do exceptionally.  

A successful entrepreneur describes it this way:"Do one thing, no matter how small. When you have it burning, you can make it bigger, better, faster and stronger... later."

4. Focus, execution and details

A successful compensation plan needs all three; how the pay program will impact behavior, tracking the numbers and rules to make sure it is doing what it was supposed to do, and ensuring that things run smoothly. Execution applies equally to both strategy and tactics. Do sweat the little things. 

Execution is everything. There is no point in having a plan unless your people understand and appreciate the behaviors that it is intended to motivate.

5. Know when to fold!

When a plan has lived its useful life - typically five years in my experience - or when a program just doesn't do what it was meant to, refresh or kill it off. They not only  take time and resources away from those plans that truly work but if they are not motivating the desired behaviors they will start to undermine your culture. You will lose the trust and engagement of your staff.

Just like an old product line, we sometimes we keep plans around because we put so much into getting them designed and launched we just cannot bring ourselves to pull the plug or we know that a lot of communication will be required to collapse it. Evaluate compensation programs yearly and plan for the time that they will become obsolete or need to be redesigned.

In summary decide who you want to be and how your compensation plan will help support that, plan the time to launch well and don't proceed until to the best of your abilities, you have right. Focus on the little things and execute exceptionally well and if it doesn't turn out the way that you had planned be brutally harsh and design something else.

This article was inspired by a piece from Compensation Cafe crafted by Dan Walter the President and CEO of Performensation and based upon an article by Gonzo Arzuaga, formerly of Startups.com describing the lessons learned from his start up.

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