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Guest: Jen L’Estrange, Founder & CEO of Red Clover, which offers large-scale, strategic, and operational Human Resources support that’s accessible to small businesses.
Overview: When it comes to comp, money is rarely enough — especially for top talent. The best workers need to feel like their efforts are not just rewarded but recognized as integral contributions towards Making BIG Happen. Your compensation package has to tie all of these motivations together in a way that’s clear, equitable, and integral to the company’s top goals.
On today’s show, Jen L’Estrange shares five key insights on upgrading your compensation package:
1. Increase focus on variable compensation.
2. Communicate clearly about how compensation is structured.
3. Incentivize both short-term performance and long-term strategic objectives.
4. Provide non-monetary motivation for team members.
5. Benchmark salaries against market data rather than relying solely on cost of living adjustments.
Jen L’Estrange on the rise in variable compensation:
“Over the last year or two, we’ve seen an increasing focus on variable compensation at executive levels, but also all the way down the organization. Whether it’s executive compensation and drawing out longer-term comp programs, right down to individual contributors and trying to figure out ways to tie some of their compensation to organizational results. The other thing that we’re seeing is a blend of different kinds of compensation. And this is more true at the executive levels where we’ll have different kinds of bonuses or incentives that come in with different kinds of timing. So tying in bonuses for the management teams, or however they’ve structured their organizations, where we’re rewarding them not just for the top-line growth, but for the actual retention of the existing customer base, which has proven to be a really positive incentive and something that is influencing people’s behaviors. As they’re engaging, they’re thinking about, ‘How can I help drive more value to this client so that they want to continue working with us long term?’ And then they’re incentivized for that retention.”
Jen L’Estrange on keeping compensation plans simple:
“Usually when we come in, we either see that a company is doing little-to-no variable pay, or they’re putting in stuff that is so complicated that people don’t know what to do. It creates this sort of analysis paralysis where employees mysteriously get this bonus at the end of the year, and they have no idea how they got it, or they become so far divorced from the actual metrics that they’re backing into the outcome after it’s already been done and trying to self-fulfill the achievement of goals that were never clearly articulated in the beginning because no one really understood how the compensation package was built. I far prefer simpler comp plans, where we’re really clear about what is driving value in the business and really having those headline items each year. If it’s revenue, what is it in revenue? Are we rolling out a new product? Is it a new service line? Is it new geographical expansion? How is it going to happen? If it’s expense-driven, what are we going to do to get more efficient in our hiring practices? I guess the problem with overly complicated compensation programs is that at a certain point, there’s so many numbers and the dashboards get so complicated that people stop paying attention altogether and they disengage. And when they disengage, they lose trust in the program’s ability to distribute the bonus in a way that is equitable or considered fair across a heterogeneous set of job descriptions. It becomes more demotivating than motivating. And that’s when we start to get people who check out.”
Jen L’Estrange on what truly motivates employees:
“Compensation, in and of itself, whether it’s base pay, variable pay bonuses, long term, short term, is a negative motivator. That means that it is always about, ‘What have you done for me lately?’ The rewards that we get in one year, if we don’t see that opportunity grow over time, all other things equal, our motivation from that same amount goes down. So if we don’t have the comp programs designed in such a way that people clearly understand what they’re trying to achieve, what they can do to continue to grow their contribution to the business, and what they can do to continue to benefit from those programs on an increasing basis over time, the general tendency is that they are demotivating rather than motivating. How do we drive long-term behavior in organizations at all levels? At the end of the day, it actually has little to do with compensation. It is feeling seen and valued in the organization and having an opportunity to contribute.”
Links:
3 Unconventional Ways to Close the Talent Gap and Groom Top Talent – We’ve seen some of our most successful CEO coaching clients use these ideas to recruit and retain the people they need to Make BIG Happen.
5 Phantom Stock Tips That Keep Teams Motivated – A phantom stock program can incentivize top employee performance without sacrificing control of your company.
About CEO Coaching International
CEO Coaching International works with CEOs and their leadership teams to achieve extraordinary results quarter after quarter, year after year. Known globally for its success in coaching growth-focused entrepreneurs to meaningful exits, CEO Coaching International has coached more than 1,000 CEOs and entrepreneurs in more than 60 countries and 45 industries. The coaches at CEO Coaching International are former CEOs, presidents, or executives who have made BIG happen. The firm’s coaches have led double-digit sales and profit growth in businesses ranging in size from startups to over $10 billion, and many are founders that have led their companies through successful eight, nine, and ten-figure exits. Companies working with CEO Coaching International for two years or more have experienced an average revenue CAGR of 31% (2.6X the U.S. average) and an average EBITDA CAGR of 52.3% (more than 5X the U.S. average).
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