3PL Perspectives
Beth Carroll | PROSPERIO GROUP
WE HAVE NOW come to the end of our series on non-traditional incentives. As a quick recap, there were four articles published in 2020 that dealt exclusively with commission-based incentive plans. Then, beginning in August 2020, we started looking at alternatives to commissions for paying employees. We have now moved really far away from the traditional 5%-12% of Gross Margin that is found at many brokerages. This is the fifth and final article in the series that deals with non-traditional incentives. There is also a 10th article that belongs with this entire series on compensation. You can find it the August 2019 edition of 3PL Perspectives: How to Have Your Employees Really Make Bank.
As a reminder, from our last few articles, the roles we are talking about are NOT sales and operations roles. Sales and operations compensation designs are (relatively) easy: You have a clear line of sight to the impact an employee can have on your bottom line, you are likely tracking their performance in several key areas, and the primary metrics are financial or highly strategic in nature. Because of this, it makes all the sense in the world to use incentive compensation, either in the form of commissions or goal-based incentives, to pay these employees.
When you are talking about non-production roles (marketing, IT, accounting, HR, etc.) things become a bit murkier. While many companies want to use incentive compensation for these roles, there is a double whammy of these common realities:
- It is not easy to develop these plans as there are no simple and clear, bottomline impact KPIs to pick from and,
- The ROI, on the effort to design the plans and the money you are paying for the incentives, is difficult to measure and, frankly, limited in terms of payback.
However, if you are still set on undertaking this work and keeping up with the ongoing administration of the plans, there are some ways to tackle approaches that work better than others. KPIs and IPMs are good for measuring repetitive and standardized tasks and objectives. MBOs are good for higher-level strategic roles like IT that are dealing with a never-ending stream of projects and Wac-A-Mole type problem solving.
THE HARDEST PART OF THIS WORK SEEMS TO BE GETTING MANAGERS TO PICK TASKS THAT ARE FINITE IN NATURE.
But what about those darn kids in the lower-level positions of these departments? They are always asking about ‘moving to the next level’ and ‘increasing their skills’ and ‘ways to make more money.’ Remember, we are not talking about your production staff, but the younger generation that exists throughout your organization as support roles. You can give them additional motivation by creating a roadmap of things they could do to enhance their value to you and to the world at large. Phrase this however you like: bingo scorecard, earning points, leveling up—whatever resonates with you and your staff.
Every manager who works within the team (and their managers, and their managers, too) knows things and have done things that those below them have not. It could be adult-education classes at a local community college or self-directed course work from programs such as Udemy. It could be experience on specific types of projects. It could be research or development of new approaches. All these things can be spelled out in a scorecard type format that can help an individual see the steps they need to take to get to the next level.
To help managers develop these scorecards, it may be useful to consider activity groupings such as Technical Skills, Business Understanding and Process Improvement. Then ask each manager to identify 3-4 reasonable tasks for each grouping that a given employee could complete in a month. This should leave you with 9-12 tasks or goals per employee. The employee can then pick from this list 4-6 tasks that they are going to work on for the year. It’s critical to give the employee some autonomy in the selection process as they then feel they have more control of their own destiny (think of this as like the Gen Ed requirements in college—you must take a few Natural Sciences classes, but you can pick from Astronomy, Geology, Chemistry, Physics, Meteorology, etc.).
The hardest part of this work seems to be getting managers to pick tasks that are finite in nature. This is very different from the repeated processes used for KPI measurements. We aren’t talking about processing 90% of bills within two weeks of POD (which happens again and again). The activities picked for the score card must be definitively completable within a specific period. The video was watched. The process improvement suggestion was documented and/or implemented; the SOP manual was written and published on the company wiki site; the book was read. You get the idea.
You can use the scorecard in several ways. You can attach a dollar value to each activity and pay the employee when the activity is completed. You can pay at the end of the year based on percent completed status (e.g., the whole thing is worth $4,000 and they completed 75% of it, so they get $3,000). You can use it for promotion—when they have completed the scorecard satisfactorily, they get moved up a level in terms of pay grade. You can use it for annual merit increase evaluation in combination with subjective evaluation of daily duties (completing the scorecard should not mitigate negative performance in other areas of the job assignment, of course). Or you can do any combination of the things above.
As with nearly every compensation design option we have been through, from commissions to developmental scorecards, the full benefit of the process really is not in the behavior change brought about in the employees (though far too many companies see that as the only goal). When you get a group of your leaders together and ask them to define what really matters for their employees to do, and to prioritize those activities, and to be very specific in terms of what good looks like in the completion of those activities—regardless of where you end up with a commission rate, or bonus plan, or how often you may change the plan, etc. THIS meeting of the minds and clarification of priorities is the key step required for truly long-lasting organizational change. Beth Carroll is the founding partner of Prosperio Group, a business consulting firm that focuses on the strategic management of compensation for global transportation and logistics companies.
Beth Carroll is based in Chicago, Illinois and has more than 20 years’ experience developing incentive compensation plans for companies across the globe in a variety of industries. Prosperio consultants have completed projects with more than 180 transportation and logistics companies. Beth can be reached at 815-302-1030 or via email at beth.[email protected]
Image credits: Viktoria Kurpas/Shutterstock.com
