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V o l u m e.. 6
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January 2 0 0 6
Creative Compensation: One Company’s Approach
A small but growing company located in Reston, Virginia is in the process
of implementing what I think are some very creative approaches to compensation.
These approaches may not be for everybody but—at least in this organization—they
seem to be working quite well.
The organization is in the business of providing utility computing solutions
to the small business community. The company does not view itself as a typical
IT provider; rather it offers a strategic business solution that helps clients
manage their computer systems and strengthen their business performance. This
is accomplished by managing and supporting client software, files and email
on a secure network, which is accessible from any computer or device connected
to the internet.
The three key elements of their compensation approach are:
• Profit sharing
opportunities for everyone in the organization
• Rewards for achieving and maintaining IT credentials
• No annual salary increases
Profit Sharing:
A certain percentage of all company profits is set aside for distribution
to employees. Different employees receive different amounts based on their
performance. Performance is measured primarily through a statistically based
method that focuses on customer requests for assistance and how quickly these
are resolved. There is a certain time allotted for each type of request to
be satisfactorily resolved. The customer, not the company, closes the ticket
when the issue has been resolved. The company tracks these actions and therefore
has a very good grasp of the status of each customer issue.
IT Credentials:
In addition to the profit sharing component, individuals can earn up to $5,000
for securing and retaining certain IT credentials. The company pays for the
test the individual takes in order to secure the credentials, as long as the
individual passes the test.
No Annual Salary Increases:
Because the company has chosen to reward based on company profits and the
attainment of credentials, there is no annual salary increase process of the
kind you would find in most other organizations. There could be salary adjustments
based on a significant discrepancy with marketplace data, but these are fairly
rare.
Sales:
In addition to the three elements discussed above, the company also offers
sales commissions for those who generate business. This program has features
similar to most traditional sales commission programs.
Initial Results:
The approach described above has only been recently implemented, and so it
is too early to determine its long-term success. However, there are several
encouraging signs.
First, the company has observed that employees are more interested and asking
better questions about company performance.
Second, because the ratings associated with successfully meeting a client’s
request for assistance are published openly within the company, peer status
is important. Employees don’t want to show up on the bottom of the rating.
The company believes that peer status may be just as important, if not more
important as financial rewards in motivating better employee performance.
Third, because there are no annual salary increases, the performance evaluation
process has become much more meaningful. Both the supervisor and the employee
are focused on what they should be focused on—discussing and improving performance.
The salary increase no longer casts its shadow over the performance evaluation
discussion.
As I mentioned earlier, this type of approach to compensation may not be
everyone. Nevertheless, at a time when many of our compensation systems continue
to function based on approaches and principles that were put in place many
years ago, it is refreshing to see a company try a new approach. The economy
and the workplace continue to change, and our rewards programs must keep up.
The company described above recognizes this, and has acted accordingly—and
I for one think they are on the right track.
Til next time.
John D. White
President
JD White & Associates, Inc.
703 556-4345
jwhite@jdwhite.net
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