by D. Kevin Berchelmann | Jun 28, 2008 | Brazen Leader, Executive Improvement, Human Resources, Kevin Berchelmann, Organizational Effectiveness
Most managers hear “retention plan,” they immediately think “stay bonus.” And to be sure, those bonuses could very well be a real part of most retention plans.
A well-thought retention plan, however, is much more than simply “money.”
Retention plans can be necessary for critical continuity during turbulent, transitional, or heavy-change times. When necessary, and well-thought, retention plans create real, measurable value to an organization when it needs it most. The key, of course, is the “well-thought” part.
During the sorts of times mentioned above – the times that drive the thinking behind retention plans – it’s easy to look to those who have done so much up to now, and convince yourself that a reward is in order. Maybe it is, and maybe it isn’t, but a retention plan isn’t the way to go about it.
A retention plan should never be used to reward prior performance; its sole purpose should be to ensure retention of those employees critical for the future success of the organization, both during and after the retention period.
So, what exactly is a retention plan? Think 3 things:
1. Communications,
2. Employee Development, and
3. Bonus Compensation.
All three of these are necessary for effective retention, and for emerging mostly unscathed after an organization’s transition.
For Communications, think open, relevant, and frequent.
Employee Development is part of the future promise of “things to come,” that will provide future leverage.
Bonus Compensation is just that – a cash “carrot” paid out in such a manner as to be worthwhile to both the employee and the organization.
Retention plans can be critical for future success – but they aren’t simply a promise of payment to a large group of people. Think through carefully what you need, and implement a plan accordingly.
by D. Kevin Berchelmann | May 28, 2008 | Brazen Leader, Human Resources, Kevin Berchelmann, Organizational Effectiveness
For my money, a well-thought, well-implemented gainsharing effort is the holy grail of productivity and efficiency incentives: Paying for performance with money you never would have had anyway, without the improved performance. An incentive plan that funds itself.
For the unenlightened, “Gainsharing” is an incentive plan that, using etsablished, historical threshholds of performance, pays incentives for “gains” based on that thresshold. Usually defined in some fashio of a “split,” such as 50% for the company, 50% for employee incentives.
An example: Company has historically spent $2.00 for every widget it produces. Under a gainsharing plan (oversimplified here for clarity), if the employee effort resulted in making widgets at $1.50 per, then the $0.50 savings, or “Gains,” would be shared equally between the company and employees.
Their are keys to an effective Gainsharing effort:
1. Get it right. Determine the critical lever(s) involved that the gainsharing will apply. These are likely the final productivity measure, e.g., cost per lb., hours per process, waste, rework, etc. Do not use simple payroll dollars. And use a recent trend data point (1 yr, 3 yrs), not some arbitrary “goal.”
2. Keep it simple. If you can’t explain it to the lowest level impacted worker in less than 5 minutes — so they really understand — it’s too complicated.
3. Communicate. You cannot overcommunicate with a gainsharing effort. You must be open and free with sensitive financial data — if you feel you cannot, don’t use gainsharing.
4. Educate. Participants must be able to “connect the dots” between today and “better,” and they need new knowledge tools to do that. Financials, process, etc.
5. Reward. Timely payouts are a must. Monthly for typical blue-collar, perhaps quarterly for more sophisticated workers. You may have to prime the pump at first.
Gainsharing is not a “template” compensation scheme where you can take someone else’s and fill in the blanks. Things like holdback/reconcile, thresholds, buy-downs, etc. all need to be determined, to say nothing of the original pland design.
If done correctly, however, there is nothing better.
But that’s just me…
by D. Kevin Berchelmann | Apr 3, 2008 | Brazen Leader, Executive Improvement, Kevin Berchelmann
Someone recently asked me, “What’s missing in leaders today?”
As I’ve said 1,000 times, “leadership ain’t rocket surgery.” Here’s what seems to be commonly lacking in unsuccessful leaders today. Any or all of these can impact a leader’s performance:
Courage — to make hard decisions; to stand behind them afterward, and to support the values and ethics of an organization even when grossly uncomfortable. To take measured risks.
True, even leaders need to feel “safe” to do these things, to some degree, but many cite some irrational, unproven fear of reprisal for their reason for cowardice in decision-making. The truth is, few — if any — can cite evidence that something really bad will happen to them. (more…)
by D. Kevin Berchelmann | Sep 8, 2007 | Brazen Leader, Executive Improvement, Kevin Berchelmann, Organizational Effectiveness
That’s right, just say “no” to “yes…” “Yes men,” that is. And don’t give me any grief about my use of gender. “Yes men” come in all shapes, sizes, genders, and flavors. And are frequently disguised – quite well – as competent managers.
They aren’t.
During my first VP-level job (seems like a while ago…), I worked with a chief executive who made it quite clear to me: “If you and I always agree, then one of us is unnecessary, and I’m keeping my job!”
As it should be. As leaders, we need divergent thinkers around us to test and validate our ideas, plans, reasoning… our own thinking. What we don’t need is a gaggle of grown-up wannabe’s chiming “great idea, boss” like a parrot in a cage hoping to get a sunflower seed.
They give us momentary gratification (let’s face it, we do like it when we’re right), but longer term disaster.
Force your staff to think, to challenge you (wisely and professionally, of course) as you should be doing with them. Refuse to accept instant agreement without solid reasoning; ask for an explanation on “why” someone thinks you are right.
Then, sit back and listen…
by D. Kevin Berchelmann | Aug 28, 2007 | Brazen Leader, Human Resources, Kevin Berchelmann
So, I have had several emails asking about executive compensation in smaller companies. Apparently, some can see the detail in larger companies, but believe that the issues are fundamentally different in smaller and mid-market firms.
You probably don’t want to hear this, but base compensation is what it is, and should be close-to-comparable for a given accountability. Regardless, for the most part, of company size. Incentives and perquisites vary, of course, but again, base compensation simply is what it is.
Smaller private companies have long faced these issues regarding competition for executive talent, particularly w/ compensation. Fortunately, many public firms are beginning to curtail their biggest draw — equity options — since FAS 123Rnow requires that they expense them. So, don’t just throw up your hands.
Realize that the way to deal with executive compensation is via a well-thought plan, not simply a “base plus bonus” scheme. What do the investors/owners want from the company? Increased shareholder equity?? Relative stability?? Cash flow?? Net operating income?? Identify this first, since it will be your critical metric. Every plan starts with a purpose.
The key to keeping execs on target is a well-designed executive compensation plan.
On average, about 50% of a private CEO’s compensation is determined by how well his/her company performs within the chosen metric(s). The rest of the senior staff should still be north of 30%.
Consider, in addition to metric-based incentives:
** Modified gainsharing or goalsharing (for management)
** Deferred compensation (unfunded)
** Increased vacation/PTO
** Reimbursements for clubs, exercise facilities, etc.
** Conference attendance, with spouse allowance
There’s a ton more to do. Approach the effort holistically – you can’t get there with just a “base-bonus” philosophy.
Hope that helps some…
by | May 28, 2007 | Brazen Leader, Human Resources, Organizational Effectiveness
Well, I had several people ask additional questions about real budgeting for Human Resources. I’ll try to expand a bit on my earlier post…
First, a microscopic finance lesson: Gross Profit is the total revenue or sales, less the cost of generating that revenue (COS or COGS). It tells you how much money a company would make if it didn’t have other costs, such as most salaries, taxes, interest, etc., normally referred to as Operating Expenses and typically including S, G, & A.
Operating Expenses are those incurred by the business that are not directly related to revenue production, such as most utilities, salaries, office supplies, etc. Operating Expenses do not typically change significantly when the organization’s level of production rises or falls — they aren’t usually “variable.” Sometimes referred to as “overhead,” “fixed,” or “indirect” costs.
Here endeth the finance lesson…
Though HR expenses are typically an Operating Expense, direct value-add from Human Resources comes from Gross Margin contribution — increasing revenue or decreasing the direct costs to produce that revenue. Cost-reduction strategies are usually outside of Gross-Profit, and can also have a significant influence on earnings. Assuming a company delivers 10% to the earnings or EBITDA line, it would take $10 of additional revenue to deliver earnings equal to your saving a dollar in Operating Expense, so don’t throw away those last few Post-It Notes.
The real “meat” of strategic Human Resources, however, comes from a significant contribution to the Gross-Profit line through various methods. We’ll discuss those in-depth in later posts.
