A wage your (sales) people want to go for - Basic principles & critical success factors on variable pay - CIB Pharma
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A wage your (sales) people want to go for Basic principles & critical success factors on variable pay Wouter Beuckels Manager 3/06/2016
Introduction
What is variable pay?
“Conditional and thus non-guaranteed part of pay
granted for reaching individual or collective goals
aiming to motivate the staff.”
Basic principles & critical success factors
1. Do not underestimate nor overestimate the importance of a bonus
Do not underestimate nor overestimate the importance of a bonus
“Do rewards motivate people?
Absolutely! It motivates them to get rewards"
(Kohn, 1993)
Do not underestimate nor overestimate the importance of a bonus
Which reward elements lead to employee satisfaction on the compensation plan...?
NO YES
Base salary package Getting a raise
Bonus percentage Experiencing procedures / systems are fair
Experiencing the results of the procedures /
systems are correctDo not underestimate nor overestimate the importance of a bonus
Which reward elements lead to work engagement?
Security
Colleagues
Work-life
Bonus
Employee benefits
Non-financial rewards
Salary
Salary policy
0% 10% 20% 30% 40% 50%
Private sector, clerical & middle management
Source: Employee survey by Centre for Excellence in Strategic RewardsDo not underestimate nor overestimate the importance of a bonus
Which reward elements could stimulate the intention to leave?
Security
Colleagues
Work-life
Bonus
Employee benefits
Non-financial…
Salary
Salary policy
0% 10% 20% 30% 40% 50%
Private sector, clerical & middle management
Source: Employee survey by Centre for Excellence in Strategic RewardsDo not underestimate nor overestimate the importance of a bonus
Do not overestimate...
Jobs have many dimensions, focusing on one aspect may lead to less
attention for non-compensated (but important) aspects
Employees aren’t overly enthusiastic about their bonuses
Little impact on employee satisfaction or intention to leave
Little impact on satisfaction about the compensation plan
nor underestimate bonuses
• Bonus = strong communicator
• Bonus impacts the quantity of work
• Can we afford not to invest in bonuses?Basic principles & critical success factors
1. Do not underestimate nor overestimate the importance of a bonus
2. Bonus as a part of “Strategic reward”Bonus as a part of “strategic reward”
Thinking about your reward strategy = 4 key questions
• How much do I want to pay?
• What do I want to pay for?
• Which reward elements will I use?
• How will I do this?
Bonus is one element in a total package
Answer these questions also specifically for your bonusBonus as a part of “strategic reward”
Motivator (intrinsic ) – non-financial
• Flexibility
• Holiday
• Working time arrangements/ WORK & ENVIRONMENT
Work-life balance
• Organisational culture and mentality
• Personal development
TRAINING & DEVELOPMENT
• Career planning – Internal Mobility
• Pension plans
REWARD
• Health and Welfare plans INSURED BENEFITS
TOTAL
REMUNERATION
• Insurances
• Company car
COMPENSATION
• Meal vouchers EXTRA-LEGAL BENEFITS
TOTAL
• Expenses allowance
TOTAL
• Bonus
• Financial incentives
VARIABLE PAY
TOTAL
CASH
• Profit sharing
• Commission
• Hourly wage
• Monthly base salary BASE SALARY
(including holiday allowance,13th & 14th month)
Demotivator (extrinsic) – financialBasic principles & critical success factors
1. Do not underestimate nor overestimate the importance of a bonus
2. Bonus as a part of “Strategic reward”
3. Create a fit with your organisation and employee populationCreate a fit with your organisation and employee population
Target Total Cash: payed when reaching objectives 100%
1 Base pay (no variable)
2 Base pay + premiums
3 ??? ‘On top’ bonus
4 ??? Target bonus without leverage
5 ??? Target bonus with leverage
Base pay
Premiums
??? Variable pay (dependent of performance)Basic principles & critical success factors
Consequences of different scenario’s for bonuses...
• Constant on top bonuses will create a perception of guaranteed bonus
Very rare on top bonuses will create suspicion among peers (“Who got one?”)
• Bonuses without leverage will create a (dominantly short term) responsibility,
collective bonuses will work well with lower levels within the organisation,
but may create a ‘no extra mile’ attitude with higher levels.
• Bonuses with leverage create an immediate, dominantly individual link with
performance,
work well with higher levels,
but demand fair reward systems with the right KPI’s.Basic principles & critical success factors
1. Do not underestimate nor overestimate the importance of a bonus
2. Bonus as a part of “Strategic reward”
3. Create a fit with your organisation and employee population
4. Correct market positioning and benchmarkingCorrect market positioning and benchmarking
Correct market positioning and benchmarking depends on
Job
Level
Sector
Size
Sales administration
Account Mgr Account Mgr Industry
assistant
Occurence Variable Pay 88% 67% 61%
Variable Pay - Paid out € 13.383 € 7.417 € 1.054
Paid Out Variable Pay (% vs Base Salary) 23% 13% 3%
Source: Hudson Generic Salary Survey –2015 editionBasic principles & critical success factors
1. Do not underestimate nor overestimate the importance of a bonus
2. Bonus as a part of “Strategic reward”
3. Create a fit with your organisation and employee population
4. Correct market positioning and benchmarking
5. Choose the right KPI’sChoose the right KPI’s
Individual, team or collective KPI’s ?
Source: Employee survey by Centre for Excellence in Strategic RewardsChoose the right KPI’s
Individual criteria Team criteria Organisational criteria
Collaboration
Flexibility Best way to align business
Awarded behaviour will
Info sharing objectives with the individual
appear more often
People focus on a broader part needs
of the organisation
Employee turnover of
‘non-high performers’
Decreased social cohesion “Free-riding” Line-of-sight
Decreased info sharing
StressChoose the right KPI’s
Select a mix of bonus criteria...
Jobs aren’t one-dimensional
Quantitative and qualitative criteria (to avoid “performance fraude”)
Mix individual/team/collective to balance advantages/disadvantages
But limit the number of KPI’s and attribute weight of at least 15% per parameter
Keep in mind
You want to select leading (not lagging) parameters
Recreate the success of your top salesmen (find what makes them successful)
Peer learning is key for salesteams (team objectives!)Basic principles & critical success factors
1. Do not underestimate nor overestimate the importance of a bonus
2. Bonus as a part of “Strategic reward”
3. Create a fit with your organisation and employee population
4. Correct market positioning and benchmarking
5. Choose the right KPI’s
6. and the right bonus formulaBonus formula
Sum, multiplicator or combination
Impact Calculation
on bonus paid out bonus
Evaluation
Individual
30%
+ 70%
Team
35% +
+
Collective
+
35%Bonus formula
Sum, multiplicator or combination
Every KPI impacts the total bonus KPI’s will reinforce or neutralize
=
Evaluation
Individual x Team x CollectiveBonus formula
Sum, multiplicator or combination
Evaluatie
Corporate
30%
+
BU 70% +
30%
+ + x =
Projects
+ 30% +
Development
10%Bonus formula
From score to bonus pay-out
Create clear expectations :
about the limits (min and max)
on how scores are translated in pay-out
about the expected spread in results
(3 in 5 will reach or exceed expectations Gauss-curve)
40% 60%
10%
or less 10% or less
Threshold Target ExcellentBonus formula
From score to bonus pay-out
Plain relation between result and reward Acceleration
High High
Variable Variable
Remuneration Remuneration
Target Target
Low Low
Low Target High Low Target High
result result
Deceleration Threshold
High
High
Variable Variable
Remuneration Remuneration
Target Target
Low
Low
Low Target High Low Target High
result result
ThresholdQuestions ? 1. Do not underestimate nor overestimate the importance of a bonus 2. Bonus as a part of “Strategic reward” 3. Create a fit with your organisation and employee population 4. Correct market positioning and benchmarking 5. Choose the right KPI’s 6. and the right bonus formula
Contact: Wouter.Beuckels@hudson.com +32 9 242 54 44
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