PRACTICAL TIPS FOR REDUCING COMPENSATION CYCLE TIME & STRESS

Transcription

1 PRACTICAL TIPS FOR REDUCING COMPENSATION CYCLE TIME & STRESS

2 Someone is sitting in the shade today because someone planted a tree a long time ago. Warren Buffett (Images by Dan Walter, President & CEO of Performensation) Like most other cycles, the compensation cycle tends to have its ups and downs: there are typically periods during which you re very busy, and during others, your workload may be much lighter. While many organizations are able to get through the lulls and surges, using a more proactive strategy can provide immense benefits by allowing you to even out your efforts. The objective of this guide is to help you take a more proactive instead of reactive approach to the compensation cycle. As we all know, our decisions and outcomes are impacted when we re forced to be reactive. Because compensation is such a critical piece of your organization s overall strategy, it s better to be able to plan ahead and make the best possible decisions that will fairly reward top performers and stay within your company s budget. Page 2

3 Combination Code to Compensation Planning Top Down and Bottom Up Planning 5D-4W-3M-2Q-1Y When you have ample time for planning, you re better able to align goals, and thus, achieve them according to schedule. Instead of being extremely overworked at the end of the year, following a strategic calendar allows you to maintain a steadier pace on a consistent basis. Throughout the coming pages, we ll discuss ways that you can structure your calendar to get the most out of your year, months, weeks, days, and even hours. We ll help you design a compensation plan that gives you more time to actually get things done (instead of thinking about how you ll get them done), which will alleviate stress as a result. Specifically, we ll cover the following key concepts: What the typical annual compensation cycle looks like How to break the cycle into 6-month intervals Planning for a successful quarter How to make the most out of each month Ensuring you re planning your week effectively Getting the most out of every day If you re ready to discover how you can start reducing the stress and time spent on your compensation cycle, let s begin! Page 3

4 1 Year = 245 work days (including 3 weeks of vacation) *Source: Statistics Report , The RadacitiGroup 11,205 work hours (45 hr/week) 25,757 s (avg*) What Does the Average Yearly Cycle Look Like? Before we jump directly into discussing the ideal calendar for your compensation plan, there are a few key points that will be helpful to bear in mind as we go along. For one thing, the ways in which managers and team members approach the compensation plan tend to be quite different. While managers typically take a top-down approach and use a big picture strategy to create the compensation plan, team members are more inclined to use a bottoms-up approach. They re more driven by ground-level tactics, and may be more aware of potential roadblocks that managers don t tend to see. A successful compensation cycle can be achieved by allowing team members to help you fill in the gaps. By getting their input, you can create a plan that works at the ground level, and is well-received throughout the entire company. Bearing this in mind will help you create a plan that has the greatest odds for success and works well for everyone s schedules. Planning for the Year: It s All About the Numbers A year seems like a long time, but you probably know firsthand how quickly the calendar pages can start whizzing by. It s no wonder why: even though a year is 365 days, there are just 245 work days in the year. Plus, you also have to take into account sick days and vacation time. So, 245 work days leaves you with 2,340 work hours (for individuals working 45/hours per week). Again, this sounds like quite a lot of time, but once we begin to break down the way that our time is used, you ll see that it s easy to start filling those hours with tasks that aren t always conducive to your compensation goals. The objective, then, is to use the time we do have as strategically as possible to make the compensation plan come to life. Another factor to consider: the average professional receives more than 25,000 work s in a year. Of course, it s unlikely that you ll read all of them, but this statistic alone stands as proof as to just how much time can get chewed up with daily tasks. Page 4

5 A Glimpse at the Typical Compensation Cycle If you re working in executive compensation, it s more than likely that your personal work calendar is the compensation committee s calendar. While there are some variations as to what the average calendar looks like from one organization to the next, here s a general idea: 1 Year Typical Annual Compensation Committee Schedule Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Compensation Education & Trends Update to remain in line with continuing educational requirements Executive and CEO Market Pay Analysis Review market trends in pay, short & long-term grants Prepare and review tally sheets for a full view of executive total rewards Fiscal Year End Incentive Payments Calculate and deliver actual prior year short & long-term award payments Plan Review Test effectiveness against company strategy Review pay and performance linkage Year-End Preparation Set goals/targets for next year s short & long-term awards Evaluate CEO performance Prepare preliminary current year incentive calculations Implementation Support Answer feature questions and provide guidance during implementation with service provider Issue Support Availability during nonstandard events Support regarding questions on plan features 13 As you can see, the year is filled with important steps, which could include: Calculating & delivering incentive payments (February) Analyzing compensation trends (mid- to late spring) Reviewing the plan, including pay & performance linkage and its effectiveness against your company strategy (August) Executive & CEO market pay analysis (October) Setting goals & targets for next year and preparing incentive calculations (year s end) Page 5

6 This high-level calendar looks like it would work quite well. However, consider how the compensation committee s schedule looks when overlapped with the compensation department s schedule: 1 Year Comp Committee Vs Comp Department Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Compensation Education Market Benchmarking & Trends Review benchmark job Update to remain in line matches and participant with continuing in surveys educational requirements Executive and CEO Market Pay Pay Competitive Analysis Assessment Review market trends in pay, short Review & long-term market grants data Prepare and review tally sheets for a Identify full view market of executive total pay concerns rewards Fiscal Year End Communicate Sales Incentive Payments Plans Calculate and deliver actual Calculate and prior deliver year short & long-term actual prior year short award & payments long-term award payments Goal Implementation and Objective Support Setting Answer Company feature goals questions cascaded and to provide departments guidance during implementation with service Comp Tem provider goal setting to align to the company goals Plan Review Test effectiveness against company strategy Review pay and performance linkage Mid Year Performance Reviews Check in with team on status of annual objectives Issue Support Availability during nonstandard events Support regarding questions on plan features Year-End Preparation Set goals/targets for next year s short Year End Performance & long-term awards Reviews Evaluate CEO performance Prepare preliminary current year incentive calculations Pay for Performance Determine Merit, Market and Incentive pay decisions 14 It s clear that there s a lot of overlap at various points in the year. For instance, in February when you re doing incentive payments, you might also be setting goals and objectives. Your executive and CEO market pay analysis will likely overlap with the time when you re reviewing market data, and by that point, year-end performance reviews are just around the corner as well. Page 6

7 How to Make It Work The goal of depicting the overlapping calendar above isn t to overwhelm you; instead, it s meant to illustrate the ways in which you can plan in advance for the busiest times of the year. One effective way to do this is to simply let your teams know which times are anticipated to have the most going on, so that everyone can coordinate schedules effectively. Communicate this information to teams, and also encourage each party to be aware of other departments busy schedules. Wherever possible, look for ways to coordinate efforts and eliminate redundancies. Most importantly, in order to achieve each of these steps, you must begin each year by mapping out your company s own calendar like the one listed above, keeping in mind your resources and unique needs. While each organization is different, two factors that are common to all compensation plans are resources and expectation setting. When creating your yearly calendar, be mindful of the following resources: The people on your compensation team Resources needed from other departments Software and other external services, if needed Time and money Also, be aware that everyone involved can only exceed if they know what s expected of them from the very beginning. Thus, it s critically important that you clearly communicate: What you expect from your team members, and What your team members can expect from the year Page 7

8 Breaking The Cycle Down into 6-Month Portions It takes 6 months to build a Rolls Royce and 13 hours to build a Toyota. Most compensation teams would agree that Q1 and Q4 are the busiest times of the year. If you already know that your most labor-intensive periods are going to be the back-to-back quarters of Q4 and Q1, perhaps a better way to view the cycle is in two halves, instead of four quarters. Breaking the annual cycle down into two six-month periods, one intensely busy and one less busy, helps you to think strategically and plan to plan. Source: UberFacts In other words, if you know that you re typically scrambling during the last three and first three months of the year, you can avoid having to run from the avalanche if you also maintain a steady pace during the months that are typically slower. Additionally, it s a good idea to hold two strategic planning sessions during the year as follows: 1 St Strategic Planning Session Held early in the year, this session should be held to review your overall company goals. Thereafter, you can make sure that the overarching objectives of your compensation team are aligning with those company goals. Now is also a good time to revisit past failures, as well as what worked effectively. 2 nd Strategic Planning Session During your slowest month (ideally during the late spring or early summer), hold a second strategic planning session. During this one, you ll discuss your long-term planning objectives for at least a year and a half down the road. You can also revisit the successes and failures of the past cycle. Finally, you ll also begin preparing for the year-end process. Page 8

9 Planning for a Successful Quarter In the previous section, we discussed how you could break the yearly cycle down into two main portions to ensure that your compensation team isn t drowning in work during the first and last months of the year. Now, we ll discuss how you can spread out your work evenly through each quarter, so that no time goes by wasted. Three-month cycles are revolving, and during each, you ll revisit the same initiatives. This might include performance metric tracking, bonus approval, financial reporting, communications, reconciliation, stakeholder reviews, and other factors that fall in between as depicted below: 3 Months Stakeholder Reviews Performance Metric Tracking STI Goals 10Q Reconciliation Bonus Approval Review Plan Effectiveness Review Comp Committee Charter Communications 2013 Performensation Financial Reporting Quarterly Considerations When planning the quarter, it s important to remember that while public companies are driven by financial performance and shareholder disclosure, private companies are typically driven by internal metrics and projects. Bearing this in mind, we ll take a look at how a three-month plan might appear for a typical public firm. Page 9

10 Week 1: During the beginning of any quarter, most compensation teams find themselves answering any questions from the previous quarter and performing a thorough cleanup. This is the time to refresh and get back on track, and respond to any inquiries that may arise. Weeks 2-3: The next phase of the quarter is the time during which you ll finalize your plans for all of your deliverables of the current quarter. Keep in mind that even though you ve preplanned, there are likely still some adjustments that need to be made during this period, and now is the time to address them. Weeks 4-7: For roughly these four weeks, you can focus on the internal deliverables for the compensation department. During this stretch of time, it s unlikely that many people will be coming to you with questions, so you can use this opportunity to narrow your focus on your most important priorities. Because this one-month period recurs during every quarter, you essentially have four solid months out of the year to concentrate fully on compensation department deliverables. Weeks 8-10: This timeframe will mostly be spent on focusing on deliverables for stakeholders. Weeks 11 & 12: The final two weeks of the quarter are spent finalizing results and generating reports. You might also use this time for gathering quarterly performance numbers for commissions and short-term incentives. Total retail sales for the third quarter of 2016 were estimated at $1,212.5 billion. (Employees compensation supported every single dollar of that!) Source: Page 10

11 Scheduling a Successful Month There are only days in any given month, so but as you know, even during the middle month in the quarter described in the previous section, the first and last weeks can still become filled with busywork. For instance, take a look at the four-week timeframe depicted below: 4 Weeks Monthly processes are the shortest segment of time that allow preplanning Monthly closes, Commission Cycles etc. T O O B U S Y P R I M E T I M E T O O B U S Y As you can see, the first and last week will likely be consumed by running and delivering monthly reports, as well as responding to questions. During the last week, you re busy with prep work. Thus, the middle two weeks give you the prime time to work on the compensation department. So, to sum up what we ve discussed so far, this means that you ll typically only have one full month out of every quarter and one two-week period out of most other months to focus the majority of your efforts on your department. The good news about coming to this realization is that you can leverage that time and use it for strategic and creative thinking to get your department under control, allowing you to move forward successfully every month regardless of what time of year it is. This is your time to get things done, and while recognizing it is an important first step, what s more important is physically blocking out these periods on your calendar so you know when to center your efforts on compensation department initiatives. Some people like to say that what gets planned gets done, but you can increase your odds for success by adopting the mentality that what gets scheduled gets done. Page 11

12 Getting the Most Out of Each Week While it s not possible to plan out every single day of the compensation cycle in advance, what you can do is utilize each week wisely to be as productive as possible. Consider the drawing below: the work week is essentially like a hill, with peak performance topping out in the middle. While Friday tends to be the day we look at as our deadline, it s also been determined by surveys to be the least productive day of the week. So, it goes without saying that we shouldn t plan for Friday to be the day when we get the most done. *Source: AccountTemps 2012 Nearly half (48 percent) of executives surveyed recently said employees hit peak performance on Tuesdays. Not surprisingly, Fridays were viewed as the least productive day of the week. Wednesdays and Tuesdays, on the other hand, are the most productive. Thus, if you need to set aside time for tactical meetings, it s best to do it on a Tuesday: it s not your teams first day back from the weekend, but it s also not before the end of the week, when they ll be focused on their subsequent two days off. An optimized weekly schedule for a compensation department might look like this: Monday: Execute the plan you made during Friday s strategy meeting; check relevant industry news and inform your network on any important findings; and complete your deliverables for Tuesday s tactical meetings Tuesday: Hold tactical meetings, but take periodic breaks and invest in yourself with webinars and training Wednesday: Check in on your deliverables for the current week and assess whether or not you re staying on schedule Thursday: Block out a few hours to work on any tasks that are taking longer to complete than anticipated Friday: Hold strategy meetings; focus on deliverables for other departments; plan, prioritize, and most importantly, schedule your work time for the upcoming week; check in on progress of goals and objectives; and clean off your desk and clear work troubles for your mind before leaving Page 12

13 6 hours is only 25% of a full day, but it is 100% of your productively scheduled time. *Source: This presentation, Dan Walter, Sam Reeve Making Every Day Count We know that most work days are roughly eight hours, but most experts say that we can only count on having six hours of work on any given day. That s because lunch, bathroom breaks, and checking in with coworkers can take up time, but it s still possible to use the six hours we re given as effectively as possible. Another thing to be mindful of is that by understanding that you have more like six hours instead of eight full hours you re also giving yourself some leeway for fire drills. Situations are going to arise in your day-to-day work life that demand your attention; that s an inherent part of the compensation environment. Yet, as long as you don t jam-pack each day with back-to-back activities, you won t compromise your other initiatives when you have to put out fires. Additionally, remember that a calendar doesn t have to comprise work meetings alone. You can and should schedule time for work that s exclusively yours, because if you don t, someone will take that time from you! In fact, you can even schedule in activities that are often perceived as time wasters (though they still wind up requiring our attention), such as communicating. This could include checking and responding to s, and networking on social media. Just be sure to categorize what s most important by taking a now-and-later approach: the head of HR and/or CEO demands your immediate attention, but a colleague can wait a bit. Finally, reserve the last half hour of each day to focus on the perfect day called tomorrow. Ending your workday by listing the first three things you have to get done the next day can set you up for a successful tomorrow, and when you keep repeating the process, you ll have a successful year, too. Page 13

14 Conclusion By this point, you may have gathered some actionable tips about how you can structure your year, months, weeks, days, and even hours for a successful compensation cycle. While it s impossible to hash out every detail of your schedule far in advance, scheduling your most important compensation work can help ensure that it will get done and that it will actually get done on time. By following the practices listed in this guide, you ll be able to reduce stress and time spent as a result of the compensation cycle, because you ll be taking a proactive instead of a reactive approach. To sum up what we ve discussed, just remember the numbers 1-6: 1 Year is the duration of the full compensation cycle, but you can break it down into smaller portions that can be scheduled. 2 Halves can be useful to plan for, because the first and last three months of each year tend to be the most intense, while the middle six are typically less demanding. 3 Months are in each quarter, and you can approach each one like a hill: do the majority of your compensation initiatives in the middle months, and allow the last one to be more of a downhill coast. 4 Weeks are all you have in a month, but you can schedule your most important meetings in the middle two. During this time, stakeholders will be less distracted, and you can follow up immediately to gauge the success of any new ideas. 5 Days make up a week, though as you know, Fridays and Mondays tend to be less productive than the others. You can use this to your advantage by scheduling your week to be most productive when others aren t. Hold strategy meetings on Fridays and tactical meetings on Tuesdays, and remember, the weekend is your time, not work time! 6 hours are the most you ll get out of any given work day, but you can block out certain times and actually schedule your own work time to ensure that you ll achieve your priorities. Most importantly, keep this in mind: things that get scheduled get done! When you plan to use time as effectively as possible, you can spread your efforts more evenly to avoid stress and time-consuming catch-up work for a more successful and hassle-free compensation cycle. Page 14

15 Resources HRsoft is the trusted global leader in compensation management software whose COMPview solution is proven to control and simplify the full process and allocation of merit, bonus and equity awards to drive manager and employee engagement. Phone: Web: hrsoft.com About the Contributors Dan Walter CEP, President, and CEO, Performensation Dan is the founder of Performenseation and has more than two decades of industry experience. His work includes both executive and broad-based programs, and he has provided end-to-end solutions for private and public companies in the U.S. and internationally. He has worked extensively throughout the Silicon Valley and in New York. He is also a board member for the National Center for Employee Ownership and the Institute for Human Resources. Sam Reeve EVP of Consulting Services, Performensation Sam is a member of the Performance Management Advisory Board for HR.com s Institute of Human Resources. He is a global certified compensation consultant with 15 years of experience in Total Reward Strategies. Sam is an expert in broad-based compensation and focuses his talents on enhancing performance through the effective use of incentive and recognition programs. Prior to joining the firm, Sam worked in the corporate compensation functions of notable firms such as BlackRock, McKesson and Automatic Data Processing (ADP). Page 15