The Ed Eppley Experience
The Ed Eppley Experience

Episode · 2 months ago

Do You Need A Compensations Strategy?

ABOUT THIS EPISODE

One of the biggest expenses in your business (if not the biggest) is the cost you have for the people you employ. Knowing that, it's amazing how many companies don't have a stratgey for their compensation. In this minilog I share some questions your compensation strategy should answer so your compesation creates the greatest engagement possible.

Welcome to the Ed Eppley Experience Mini Log let professional management expert Ed Epley Inspire Youth to take action on building a more sustainable, smart and healthy business. Hello everyone, this is Ed Epley back with another mini cast here on the Ed Epley experience, and today's many cast is about the question of do you need a compensation strategy? You know, most companies with whom I work have stated business strategies. They've got something written down that says what we'll get their resources. But to my knowledge, other than the fortune one hundred companies with whom I've worked, none of the companies that I do business with or have done business with have a written comp strategy. Now I know that doesn't mean that they haven't discussed it and debated what makes the most sense, but now that I've been thinking about it, I wonder why they haven't written it down...

...on and why haven't they put more effort behind it. You know, it's probably because they're looking for a Unicorn and UNICORNS, we know, don't exist. But the pursuit of trying to come up with the right compensation is probably so frustrating that most people just kind of default to doing something and then deciding if it needs change, but not really formulating a strategy with the same kind of discipline that they probably do their overall business strategy. So that's what I would like to talk to you about for just a couple of minutes, and because I had a client recently asked me about my thoughts about a compensation strategy, I thought I'd share those thoughts with you. So I think there are three primary areas that your strategy for compensation needs to address and I'm going to share those with you. Number One, I think people will want to know how do they earn more? What warrants a pay increase and what role in your pay should variable compensation contribute to that be zero percent? Should that be?...

Should that? That's a part of the strategy that you should probably be thinking about. Should variable company based on my results, the team's results or the company's results? Is another question I think your strategy has to answer. And then the second area is money versus total rewards. What are the other benefits that you're going to offer and how do they fill out? What should be addressed in the total compensation that somebody gets? So what kind of health benefits, what kind of retirement what kind of vacation and paid time off and things that nature are all part of that. And what are those combination of benefits actually worth in total dollars? And how do we make sure people understand the total compensation and not just think of their compensation is simply the money that they get for the work that they provide your organization? Last area is how...

...does the business work? So how do you make or lose money in Your Business? What critical few things create the value for which you are paid by your customers needs to be really well understood and defined for people. And then secondly in that area is what's my contribution mean to the value that we create? I had someone once say to me that really stuck. Are you part of the shower head or the shower drain of the business? Meaning if you're part of the shower head, you generate revenue that allows the business to operate. If you're part of the shower drain, you're part of the overall fixed expense of the business and frankly, that makes a difference in terms of how people might want to compensate you. So that needs to be well understood and defined for people. And then the last area is how critical is the talent that we have in our business to what we do in the business. And let me give you an example. If you're an accounting firm, then the people you have are probably pretty important, or a law firm, architects,...

...engineers. If people are the primary product, then probably talent needs to be different and higher in all regards that it would be if you were in a manufacturing plant. Why we still want talented people. The concept here would be that a lot of the value that we create is done by work of machines that create the value or the change in the product, the raw material that creates the valuable thing that one of our customers wants. So the amount of money that we don't want to spend for people in a manufacturing environment as a percent of our overall cost of operating probably wouldn't be as much as we wouldn't want to pay as if we were in a professional services firm. So that's that last component of how does our business work? How do we make or lose money? So when you're working on your business strategy this coming fall, I want you to also think about how should that affect the strategy you have for compensation. Remember, there's three things how do people earn more total money...

...versus total rewards, and how does our business make or lose money? Those are the three things I think your compensation strategy needs to address for it to really create extra value for you. That's all for today's mini cast. I'll be back with another one very soon. Be well, my friends. talked to you later. Thanks for listening to the ED epley mini loog. Visit www the epley group dot com for resources, tips, ED's latest blogs and a free assessment on where to improve your professional management skills.

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