09 Jul How Should I Pay Support Roles?
Very shortly the annual TIA compensation survey will be ready and you will be able to see some of the changes that have happened in pay rates from 2016 to 2017. In our review of the preliminary data, we are seeing some significant changes both in terms of the staffing approaches and the pay amounts, which is not surprising given the significant shift in the market and economic conditions. We also provide data on support roles, such as IT, Accounting, HR, marketing, and this can raise the question: If incentive pay is good for our production team (shipper sales, carrier sales, etc.) then isn’t it also good for our support roles?
The answer is a very qualified “yes.” Incentive pay CAN be good for these roles but it is different in relative amount and in the nature of how it is calculated and delivered. Thinking of them as production resources is incorrect. They are cost centers. Sometimes very specialized cost centers that have very specialized salary rates required for market competitiveness (think about your IT staff). You need to think about them in their world, more so than you think about them in the brokerage world. The good news is you can get a lot of good, broad salary information on the web from sources such as salary.com. You can also search the job posting sites to find out advertised rates for similar positions. The industry doesn’t matter. An entry level marketing manager in healthcare will expect the same level of pay as an entry level marketing manager in manufacturing or in a brokerage and will go to the highest bidder…all things being equal. Now there is definitely some advantage to understanding the business you are working in, but this still doesn’t narrow the field too much as a marketing manager who has worked in any supply chain job will quickly catch on to the particular lingo of a brokerage.
Most of these roles are also very difficult to develop individually measurable, controllable and business relevant KPIs for. Remember the four watchwords of incentive measures: relevant (it matters to the business), objective (clear what is a “win”), measurable (you can track it), and controllable (the person being paid for it can change the outcome). Many of the ways these roles impact the business are highly relevant but very limited in terms of measurability or controllability. There are little pockets where better measurement is possible (your person in charge of google ad words can see an increase in clicks based on keywords chosen, you can track an increase in inbound calls, and your A/R person can certainly work to maintain DSO within acceptable levels) but there are many other roles that are nearly impossible to ferret out individual KPIs for. In one of the great ironies in the world, compensation design is usually an HR function, and HR is the area that is notoriously the WORST for being able to have individualized incentive compensation. Often, it is also the case that the business relevancy is in keeping something bad from happening. You know IT is doing a good job when your system doesn’t go down. So how do you pay someone for something bad NOT happening? Is there any level of bad that is ok? It’s a bit hard to scale. And isn’t that pretty much their job, anyway?
I’ve worked with companies with a firmly entrenched “everyone is on an incentive plan” philosophy and I’ve worked with others who think all these roles should be paid straight salary and that is it. As always, the right answer is in the middle. For most individual contributors in these roles, the amount of pay at risk should not be more than about 10% of their salary (so if their salary is $50k, their target incentive is $5k). If they do, they risk taking their eye off the ball of their truly important tasks to chase after an incentive over which they have limited control. The measurement of incentives for these roles can become hugely cumbersome as well. If you are spending several hours a week calculating $50 in weekly incentive pay for your billers, you are probably better off spending that time on other department improvement initiatives and just giving them all a $2,600 a year raise; or you could reduce the frequency of the incentive to make it more meaningful when it happens and less burdensome to calculate.
In general, though, if you want to use individual incentive pay for these types of roles, there are a few primary choices available:
KPIs such as DSO, time to bill, and % unbilled. You can also use piece-rate payments for items processed but do not do this if you can’t measure accuracy as you will end up with lots of inaccurate bills processed.
Typically, IT is measured on system uptime % or projects completed (MBOs). MBOs are specific bonus amounts tied to complete projects on-time and within budget.
more is possible now that so much is tracked through internet marketing and social media, so you could tie incentives to changes in your inbound leads, your clicks, and your web stats. Also, marketing is the front-end of your sales organization so it’s not a bad idea to have some of their pay tied to total revenue or load count (yes, I said revenue as they have ZERO impact on carrier rates).
Recruiting is the one area inside HR that is often on a pretty lucrative incentive plan, especially if they are recruiting truck drivers. Usually, these are piece rate plans ($ per head) that is tied to flow through the pipeline. Beyond recruiters, the overall HR staff could be tied to staff turnover, engagement survey results, training and development stats such as % of positions filled from within, etc. However, these are tricky to track and hard for an individual HR person to control. There ends up being lots of discussions around what should and should be counted for turnover, etc.
For all these roles there is absolutely nothing wrong with, and in fact, it’s advised, to have some incentive pay tied to the company’s attainment of its top-level financial goals. This can be paid quarterly, semi-annually or annually and for these kinds of roles the pay is usually stated as % of salary, with higher %’s for those higher in the organization (e.g., marketing support may have 5% of salary as an incentive tied to company gross margin, whereas the Director Marketing may have 25% of salary as an incentive). Note that as with production roles that have a company component, using net income or bottom line profit is always problematic and not advised. No one except the senior leadership team sees all the numbers that go into net income and they have very little control over the things that can change that number. Ownership may decide to build a new building, and this will reduce everyone’s bonus if it’s tied to net income. This is a quick way to burst a morale bubble and make people less enthusiastic about their new digs. But if you tie the incentive to company gross margin, this is a number that can easily be shared with everyone, they see it changing daily, and they have some sense how what they do on a day to day basis affects it. You just need to be sure to set the goal high enough to account for the incentive payouts (as a budgeted item) when you reach the goal so that in the end your net income is where you need it to be.