Canadian Payroll Reporter

CPR_JULY_2013V2:Canadian Employer.qxd 13-06-14 12:42 PM Page 2 JULY 2013 'Star performers' will thrive: Compensation expert Continued from page 1 dent, in an online blog for the Harvard Business Review in March. The commission plan is different for every role and department. It can range from 10 per cent salary and 90 per cent commission for salespeople, to 80 per cent salary and 20 per cent commission for programmers and engineers, they said. While the company's employee base of 100 has stayed relatively stable for the past two years, its revenues have increased by more than 60 per cent year-over-year since 2007. "Much of our success is due to our highly unusual compensation strategy that motivates everybody in the business to help the company grow," said Williams and Scott. Along with being a powerful motivator, this type of compensation plan also helps employees understand how their role and job performance impact the organization, said Janet Candido, principal of Candido Consulting Group in Toronto. "This type of system... requires employees to understand very clearly and very specifically how what they do helps the company achieve its business strategy or direction," she said. But for many positions that are secondary or tertiary and not directly linked to sales, the line of sight to one's own job might not be so clear, said Steven Osiel, vice-president of total compensation at Pal Benefits in Toronto. "There may be confusion what one should do in the marketing department, finance department, manufacturing to ultimately get to the sales," he said. "The commission plan is linked so high-level, whether it's revenue or profit, it's a corporate goal and most organizations also put in a personal goal so you can have a conversation about an individual's contribution." Another organizational advantage of offering a program like this is actu2 ally linking the payout to the company's profit or revenue, said Candido. "They have lower fixed costs and the variable costs are linked to the company's performance so if they didn't do well, they don't pay out as much, but obviously if they do well, they pay out more — but they're happy to," she said. But this can also be a disadvantage because the company does not have the ability to contain costs through fluctuations, said Osiel. For example, the company might have made $10 million in six months and then lost $10 million in six months, so it's neutral — but it already paid commission on that first $10 million, he said. "Much of our success is due to our highly unusual compensation strategy." In this compensation system, the issue of a problem employee will take care of itself, said Candido. "Your star performers are going to rise to the top and the marginal performers, or the ones that don't have the skill set, they are going to selfselect out," she said. "They can't work in this system." But if that doesn't happen, HR will have to make sure low performers are managed very aggressively, otherwise high performers will start to resent the employees who are not pulling their weight, said Stephanie Milliken, principal of Milliken HR Consulting in Vancouver. "But can everybody be a high performer? Sometimes we have folks in our organizations that are a little slower than others and we accommodate them, and we can accommodate them because we're not taking away from other people's awards if it's individual based," she said. Another disadvantage of focusing on revenue is that it opens the door for unethical behaviour and sales could be being made at all costs — or at a risk to quality or immediate customer satisfaction, said Milliken. A compensation system like this would work best with smaller, entrepreneurial-type firms as opposed to larger organizations with more rules and structures, said Candido. But once a smaller company starts to grow, this commission system can pose some issues, said Milliken, who has previously worked with a company with this type of structure in place — which is now out of business. Employees end up getting too much of the company's money and then there's not enough left to invest, she said. "If employees are getting a percentage of the revenue and the revenue starts to skyrocket, you start to distribute money out to people that is unsustainable. And that happened to my client — all of a sudden receptionists were earning $80,000 per year because of revenue that was generated, not because of their efforts but because of other factors beyond their control," she said. Fishbowl does adjust base salaries to take its commission structure into account. For example, the market rate for a junior programmer might be $60,000, but Fishbowl would offer $48,000 plus commission — which would translate to between $65,000 and $75,000 per year, according to the president and CEO. Employers considering implementing this type of compensation system have to be prepared to communicate to employees on an ongoing basis, said Candido. "You're going to have to be quite open about the financials, at the very least the metrics at which commission is going to be paid," she said. There are some legal considerations for this plan, such as ensuring employees are paid at least minimum wage, irrespective of the compensation structure, and they are being properly paid overtime, said Osiel. Canadian HR Reporter, a Thomson Reuters business 2013

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