Variable Pay / Performance Based Pay

Variable Pay/Performance Based Pay Programs (Non-Sales Incentive Compensation Plans)

Prosperio enables companies to leverage best practices from sales compensation design methods to drive greater urgency and focus among non-sales roles, with frequent (more than 1x a year) variable compensation plans. This part of our work is quite varied and can cover many different roles in an organization, but there are some common groupings which may help you understand if our services in this area will address your particular needs.

Organizations call variable compensation programs for non-sales roles by many different names:  variable pay, pay for performance, incentive compensation, piece rate pay, performance pay, component pay, variable compensation, etc.  As organizations LOVE acronyms, these often get abbreviated to:  VC, P4P, PFP, IC, PRP, etc.  Note that sales comp plans have an equal array of abbreviations:  SFC, SIP, SC, etc.  There are literally thousands of potential company specific abbreviations for these type of plans, so consider what the plan is trying to DO and choose the most generic terms rather than seeking out specific information based on your company's unique name or abbreviation.

Prioritizing Roles

While some companies believe strongly that EVERY role in an organization should have some pay at risk and determined by some level of individual or team performance, there is definitely a prioritization methodology in terms of determining which roles are more suited to variable pay than others.  If you group your roles along the two dimensions of individual accountability/measurability and impact on profitability, you will get an idea on where to focus your design effort for variable pay:

Using a trucking company as an example, we could group the roles as follows:

Note: each company will be different and their roles may have more or less impact on profitability or more or less individual measurability.

We have found through years of compensation design for all of these roles, that there do tend to be some universal truths about which roles are easy and which roles are more difficult for compensation design.

How Far Can We Take It?

Prosperio works with companies to identify the appropriate roles for variable compensation and to develop plans that ensure the best alignment of performance and pay, resulting in the best economic ROI on compensation expense for the company.

Through years of compensation design for diverse roles, we have found some universal truths about which roles are easy and which roles are more difficult for compensation design.

Easiest:

• Sales support roles such as customer service & sales engineers
• R&D and operations roles (which can vary tremendously based on the organization's purpose)
• Manufacturing & production roles (piece rate type of plan)
• Warehouse roles such as forklift operators and selectors
• Trucking company roles such as driver managers and load planners
• Software company roles such as programmers and developers 

All of these roles are good potential candidates for individual variable compensation that is tied to performance, though there are definite preferences (and cautions) by role and industry.

Gray Area:

• Maintenance & Safety
• Facilities Management
• Many others…

Most difficult:

• HR
• IT
• Marketing (Exceptions include SEO & PPC roles with measurable metrics)
•Accounting (A/R which can be incented based on days sales outstanding (DSO), aka "payables aging")
•Janitorial services

These roles may be VERY influential in terms of business profitability, but it's nearly impossible to accurately measure their direct impact on profitability at an individual level.  It may be possible to measure team-level results, but care will need to be taken that the incentive payout doesn't end up rewarding "coat tail riders" as this is often a challenge when using team-based metrics.

A note on Executive Compensation

Executive Compensation is one of the three specialized areas of compensation as defined by the large HR firms (Sales Comp, Executive Comp, and Broad-Based Comp).  Executive compensation for executives of publicly traded companies (and large private companies) requires specialized training and knowledge and there are many firms that have talented consultants who have spent their entire careers in this area.  Prosperio can help with executive pay for smaller companies, but for larger organizations we recommend contacting Pay Governance and asking for John Sinkular or Brian Scheiring.

Learn More In Our Compensation Blog

Express Project

When your needs span several roles but you have only a few people and will not have much of an issue with change management, our Express Project is for you. We’ll spend time with you and your senior leaders getting to understand your business and working with you to develop your plans as quickly as possible. We’ve successfully executed a number of engagements for small to medium-sized organizations (5 to 20 people) just like yours.

An Express Incentive Project includes:
• Strategy and structure review/refinement
Compensation plan design for up to 5 roles (salary bands and incentives)
• Market benchmarking of pay levels for the 5 roles
• Plan documentation
• Pro-forma economic modeling (minimal historical testing)
• Roll-out training
• Development of simple Excel calculator
• 3 months of post-project support
• Turnaround is approximately 4-6 weeks

1P1P Project: One plan, one role

A 1P1P Project is great for start-ups and small companies, and those with an immediate need for a compensation plan for one person in one role. The 1P1P Project is a virtually delivered program that’s a fast, affordable alternative to big software firm fees.

The 1P1P Project includes:
• All plan design details
• Basic market pricing
• Economic testing
• Incentive plan documentation
• Outlining of goals and expectations
• Review of business goals and impact of this role on those goals
• Role clarification
• 3 months of post-project support
• Turnaround is approximately 2-3 weeks

Full Service Incentive Plan Project

When you need more in-depth assistance in clarifying business objectives, streamlining your organization structure, improving accountabilities and role definition, and are developing incentive plans for several interconnected roles for a large staff, we recommend a Full Service Incentive Plan Project. This solution features on-site meetings with our developers and your design team, and is often selected by medium-sized to larger companies, or small companies undergoing significant transition.

A Full Service Incentive Plan Project includes:
• Business goal clarification
• Business strengths assessment
• Compensation plan design for all roles in scope (salary bands and incentives)
• Development of career levels for highly populated roles
• Employee change management
• Extensive pro-forma and historical economic modeling
• Goal-setting guidance
• Incentive plan documentation
• Market benchmarking of pay levels for all roles in scope
• More detailed Excel template for use by your staff for doing plan calculations (variable based on your needs)
• On-site roll-out support
• Organization redesign and role change/definition
• 12 months post-project support
• Four+ on-site days
• Turnaround time is at least 90 days, but may take longer depending on size of organization and magnitude of change