Risks and Opportunities...

These are tough times... And Compensation professionals are wondering what can be done to help the company maintain profitability while keeping the employees engaged. In some cases, it is a matter of keeping the employees employed. Clearly, coming up now with added compensation or benefits costs recommendations may not qualify you for an accelerated promotion path. However, Compensation professional can and must still demonstrate creativity as risks and opportunities are presenting themselves.
An area of many risks, of different sorts, is Executive Compensation. You should all read the F.W Cook essay on a recommended framework to avoid Executive Compensation practices leading to excessive and damageable risk taking by the CEO and other top executives.It reminds us that "pay at risk" does not necessarily equates to "pay for performance". You can read this article here . Executive Compensation presents of course an other risk, one brought upon us by the added scrutiny of both general public and shareholders on the pay packages. Beyond the inflamed reactions of the public to the use of private jets for the CEOs of the big 3, there will be more questions, more reviews and probably even more difficult discussions with the Compensation Committee. The way out this additional pressure, and this is not new as it should always have been the main concern on our mind, is to "bad-performance proof " your executive Compensation packages. The shift to Restricted Stocks, the all too natural tendency to pay "some" bonuses even in bad performance times for retention purposes has been hurting the linkage between pay and performance. The current situation reminds us that the link between pay and performance should not be a one way street...
Pay for performance is also the key word in the area where we can find opportunities to improve upon the compensation packages and practices during troubled times : Sales Compensation. Now is the time to assess the effectiveness of your Sales Compensation Plans. When you try to conduct such assessments in periods when the company is doing really well , you encounter a lot of difficulties : concerns of the sales force that you are just trying to cut their pay, lack of motivation from Sales and Finance management because, after all, why fix it if it is not broken. But there is more to the effectiveness of a Sales Compensation plan than changing the Target Salaries. Actually, improving the effectiveness of Sales Compensation Plans usually has nothing to do with cutting the On Target Earnings. It has to do with re-assessing the behaviors that the plans are trying to drive, re-directing the efforts of the sales population towards more critical, more profitable, more strategic products, identifying the areas of "lost productivity", reviewing the "side effects" of some programs , as well as the "interactions" of spiffs and other promotional programs on the total results.
This analysis has to be done, and now is the time.