Variable Pay / Performance Based Pay

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

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

Organizations call 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 types of plans, so consider what the plan is trying to DO and choose more generic terms rather than seeking out information based on your company's unique names or abbreviations.

PRIORITIZING ROLES

While some companies believe strongly that EVERY role in an organization should have some pay at risk, there is a prioritization strategy for 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:

accountability and profitability matrix.png

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.

accountability and profitability matrix2.png

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

HOW FAR CAN WE TAKE IT?

Prosperio works with companies to home in on the appropriate roles and to develop incentive plans that ensure the best alignment of performance and pay. This results in the best economic ROI on compensation expense.

Through years of experience involving a multitude of roles, we have found many reliable patterns about which roles are simple and which roles are more complex for compensation design.

Most Obvious:
• 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 these roles are good potential candidates for individual 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…

These are roles that could benefit from a pay for performance program, but it may be difficult to measure individual performance.

Least Beneficial:
• 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 QUITE influential in terms of business profitability, but it's nearly impossible to accurately measure their direct impact 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 reward "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 publicly traded companies (and large private companies) requires specialized training and knowledge. There are many firms with talented consultants who have spent their entire careers in this area. Prosperio can help with executive pay for smaller companies (cash only, not equity), but for larger organizations we recommend contacting Pay Governance and asking for John Sinkular or Brian Scheiring.

Learn More In Our Compensation Blog

Featured

Freight Broker Organization Structures Part 2: Split Model

In the previous article we looked at the Cradle to Grave organization structure and the common compensation approaches used to go along with those roles. Now we will look at the Split Model, the roles commonly found in this model, and how they should be paid (spoiler…paying everyone a commission (% of the load), while common, is suboptimal).

Freight Broker Organization Structures – Part 1: Cradle to Grave

I’ve been working with freight brokers for over 15 years now, helping them revise their organization structure and align their compensation plans to support the goals of their business. While the number of different possible organization structures is almost limitless, there are really only two approaches, with some variations on each: Cradle to Grave and Split Structure. This article deals with the first; we will address the Split Structure in the next article.

Commission vs Goal-Based Incentives Part 4: Preparing for Goal Based Incentives

We’ve been working our way through the various ways you can calculate incentive pay and have covered quite a few so far. As a recap, here are the various methods and the articles you can reference to find the content on that method.

Commission vs Goal-Based Incentives Part 3: Retroactive vs Progressive

A better approach, though I admit it’s harder to explain, is the progressive rate. This pays the higher commission rate only on the dollars within the tier…NOT back to previous tiers or the first dollar. This allows you to get a much smoother payout curve so there is now very little reason to cheat the plan.

Commissions vs Goal-Based Incentives Part 2: Draws vs Seat Cost

On the commission side of our graph (see the article from September 2023), we are moving toward using some sort of “goal” to affect payout, rather than simply paying a straight commission from the first dollar. One of the ways companies initially think of doing this is by deducting the salary or a “seat cost” from the commission calculation. This ensures that commissions are not paid until the employee as covered their costs to the organization, which is usually an approach that CFO’s like… a lot. And it can have it’s place in an organization, particularly when it is just starting up. However, it does have some downsides.

Commission vs Goal-Based Incentives Part 1

In previous articles we looked at different organization structure such as Cradle to Grave or Split model organizations and I referenced the need to understand different compensation approaches when dealing with split roles so that you can do something OTHER than simply paying everyone a smaller and smaller percentage of the GM$. This article will be the first in a series that will go into detail on these different approaches and how you can learn to select the best one for your various roles.

The In's and Out's of Successful Recruiting and Compensation - June 2023

In this webinar, Beth previews key topics covered for her upcoming training and answers questions from the audience. Learn more strategies to recruit and retain top talent and how to shape your organizational structure to fit your compensation needs.

Introduction to Brokerage Organization Structures and Compensation Methods - March 2023

At the TIA’s recent Lunch and Learn, Beth gave a quick introduction to the most common Freight Brokerage organization structures, compensation methods, and the pros and cons of each.

Beth Carroll 2021 OTA Annual Conference Presentation Video

The Ohio Trucking Association recently hosted their 2021 OTA Annual Conference, presented by Pilot Company, this week in Columbus. Over 160 in-person and virtual attendees joined exhibitors and sponsors for the event. The conference featured outstanding programming, opportunities to network and of course featured speakers, including Beth Carroll.

OTA On The Air - Episode #24 - Taming the Compensation Monster

Earlier this month Beth Carroll was a guest on an episode of OTA on the Air with President & CEO Tom Balzer. For anyone unfamiliar, OTA on the Air features industry experts and thought leaders who provide updates on the regulatory, legislative and compliance environment. Beth will also be one of the Keynote Speakers at this year’s OTA Annual Conference in September.

Common Project Types

EXPRESS PROJECT

When your needs span several roles, but you have only a few people, our Express Project is your best bet. We’ll spend time with you and your senior leaders understanding your business and working alongside you to develop the plans as quickly as possible. We’ve successfully executed hundreds engagements for small to medium-sized organizations just like yours (typically 5 to 50 employees).

An Express Incentive Project includes:
• Strategy and structure assessment
• Compensation design for up to 5 roles
• Includes salary bands and incentives
• Market benchmarking of pay levels for those roles
• Plan documentation
• Pro-forma economic modeling (minimal historical testing)
• Roll-out guidance
• Development of an incentive calculator via Excel
• Additional automation possible
• 3 months of post-project support
• Project turnaround is approximately 4-6 weeks

1P1P PROJECT: ONE PERSON, ONE PLAN

A 1P1P Project is great for start-ups and small companies! It is our smallest project size, but this makes it ideal for those who need a single plan immediately.

The 1P1P Project includes:
• All plan design details
• Basic market pricing
• Economic testing
• Incentive plan documentation
• Outlining of goals and expectations
• Assessment of business goals and…
• Assessment of impact of this role on those goals
• Role clarification
• Development of an incentive calculator via Excel
• Additional automation possible
• 3 months of post-project support
• Project turnaround is approximately 2-3 weeks

FULL-SERVICE COMPENSATION PROJECT

When you need to clarify your business objectives, streamline your organization structure, improve employee accountabilities, AND want to develop plans for several interconnected roles, a Full-Service Compensation Project does it all! This project features multiple virtual meetings with our developers and your design team and is often selected by medium-sized to larger companies, as well as small companies undergoing major transformations.

A Full Service Compensation Project includes:
• Business goal clarification
• Incentive compensation plan design for all roles in scope
• Salary bands suitable for job postings
• Development of career levels for highly populated roles
• Employee change management
• Extensive pro-forma and historical economic modeling
• Goal-setting sharpening
• Market benchmarking of pay levels for all roles in scope
• Roll-out support and guidance
• Organization redesign and role change/definition
• 12 months post-project support
• Detailed and automated Excel calculator
• Additional automation possible
• Possible introduction to one of our EIM vendor partners
• With integration assistance into their platform
• Turnaround time is at least 90 days
• May vary depending on size and magnitude of change