5 Rules for Managing Pay During a Hiring Surge

5 Rules for Managing Pay
in a Hiring Surge

22
Today’s Presenter:
Ken Gibson
SeniorVice President
(949) 265-5703
kgibson@vladvisors.com
23201 Lake Center Drive, Suite 207 ⬧ Lake Forest, CA 92630 ⬧ 949-852-2288
www.VLadvisors.com ⬧ www.PhantomStock.com

5 Rules for Managing
Pay in a Hiring Surge

44
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Post Webinar Intro
5 Minutes:
 Who We Are
 What We Do
 How We Do It

77
23201 Lake Center Drive, Suite 207
Lake Forest, CA 92630
(888) 703 0080
www.vladvisors.com
www.phantomstock.com
www.bonusright.com
 Headquartered in Lake Forest, CA
 Founded in 1996
 Over 600 clients throughout North America

88
The Reverse COVID-19 Effect
 What if your problem isn’t
laying people off?
 What if your problem is
managing a hiring surge due
to increased interest in your
product?

99
5 Rules
Separate
Temporary &
Permanent
1
KnowYour
Philosophy
2
EmphasizeValue
Sharing
3
Keep it Simple
4
Make it Agile
5

1010
1. SEPARATE TEMPORARY &
PERMANENT
Do you have a plan for compensation temporary employees that is
different from permanent hires? If so, how is it different? In what ways
can it be the same?

1111
Key Questions
 What is causing the increased
demand?
 Is the surge in demand temporary or
enduring?
 How much of your hiring is tied to the
temporary need vs a long-term need?
 What percentage of your new
employees need to be hourly vs
salaried or sub-contracted?
 What commitments are you prepared
to make now?
 What commitments can only be made
sometime in the future?

1212
Temporary (Hourly)
Focus on
safety
Pay a market
wage
Hire enough
people
Manage work
hours
Humanize
outcomes
Provide
flexibility
Create
incentives
Communicate
Listen

1313
Temporary (Hourly)
Monetary Incentives
 Spot bonuses
 Deadline rewards
 Project incentives

1414
Temporary (Salaried or Sub-Contracted)
 Pay salary as last resort
 Create sub-contractor
relationships
 Develop performance
agreements
 Outsource

1515
Performance Agreement
 Typically done for executive or high-level
management
 Participants excluded from company’s incentive
plans
 Annual “deal” negotiated with CEO or other
primary business leader
 Deal memorialized on a “deal sheet”
▪ Defines financial, operational & leadership expectations
▪ Defines value of the award that could be generated
 Quarterly self-evaluation against performance
expectations with primary business leader

1616
Performance Agreement
Outcomes:
 Threshold for compensable
performance is very high
▪ Small or even $0 payouts can occur
 High-risk, high-reward—high upside

1717
Opt-In Plans
Most Ideal in Small Company or Start-Up
Environment
 Opt for:
▪ “Higher” salary plus modest incentives
▪ “Low” or no salary and high upside through
short and long-term value sharing
 Opt-In payments tied to a revenue or profit-
sharing formula
 Volatility: payments lowered &/or deferred
▪ Deferred payouts made when economics permit
 Opt-In periods may differ
▪ Quarterly, semi-annual, annual

1818
Opt-In Plans
Outcomes
 Owners can limit guaranteed payouts
 Employees have options
 Highly flexible—can adjust to rapidly &
frequently changing economics
 Provides a “shared” entrepreneurial
experience
 Promotes an ownership mindset
 “Self-identifies” key performers

1919
Temporary (Salary)
Monetary Incentives
 Spot bonuses
 Deadline rewards
 Project incentives

2020
Non-Monetary Incentives (All Temp
Employees)
 Individual recognition
▪ Use technology to recognize face to face
▪ Recognize for specific actions
▪ Recognize on public/social channels
 Gift cards (online)
▪ Inexpensive and immediate
 Product discount
▪ Makes employees advocates and creates good will
 Permanent position
▪ Creates an incentive for performance
 Culture of contribution
▪ Reward employees for donating to charities
▪ Create a contribution platform to facilitate
 Be timely
▪ Whatever you do to reward or recognize, don’t wait

2121
2. KNOW YOUR PHILOSOPHY
In the current environment, what should be rewarded and how? How
should your philosophy differ now than during less chaotic times?

2222
Compensation Philosophy Statement
 How value creation is currently
defined.
 How value is currently shared—
and with whom.
 How market pay standards
currently apply.
 How guaranteed pay and value-
sharing will be currently
balanced.
 How short and long-term value-
sharing will be currently
balanced.
 How merit pay is currently
defined.

2323
Key Areas to Focus On
 Explore and refine
“urgent hiring”
principles.
 Determine priorities
for cash and non-cash
compensation, as well
as benefits.

2424
Then What?
 Put it in writing.
 Refer to it frequently.
 Communicate it…soon!
 Emphasize what will be
rewarded.
 Solidify a sense of partnership.
 Create a longer view.

2525
3. EMPHASIZE VALUE SHARING
How will you define value creation for your business? How and with
whom will value be shared? What measures will determine value-
sharing?

2727
Core Changes Shift from “Incentives” to “Value
Sharing”
 Took away local measurements
driving management incentive
plans—all paid on same metrics
▪ “We live together and we die
together”
 Aligned everyone behind
company success
▪ “I call it ‘pay the company first.’ ”
27

2828
Pay the Company First
“Basically, up to the company’s
operating profit target, all of
the profits go to the company;
and only after that target is
met, do we start funding the
incentive pool.”
Example: If UL’s target is
$80 million--
 100% of first $80 in
profit goes to company
 The next $20 million
goes to the incentive
pool
 From there on, 50/50
between company &
incentive pool

2929
Pay the Company First
Once value creation is defined,
compensation can follow a formula
for sharing value in a way that aligns
key producers with the company’s
business plan and priorities.
29

3030
The Value of Profit
Wealth Multiplier
Profits
Secure
Business
Reward
Employee
Results
Protect
Shareholders

3131
A Sense of Partnership
Leads to a Growth
Multiple
The Value of Profit
Wealth Multiplier
Profits
Protect
Shareholders
Secure
Business
Reward
Employee
Results

3232
Setting Performance Thresholds
 Base
 Target (budget)
 Superior
32

3333
Outcomes, not Methods
"You cannot hold
people responsible
for results if you
supervise their
methods.“
(Stephen R. Covey)
33
"You cannot hold
people responsible for
results if you pay
them for their
methods.“
(VisionLink)

3434
4. KEEP IT SIMPLE
How do you effectively reward the short-term outcomes that need to be
achieved? How do you balance a focus on short-term vs long-term
performance?

3535
Dual Focus
Peter Drucker once wrote that the
manager’s job is to keep his nose to the
grindstone while lifting his eyes to the hills.
He meant that every business has to
operate in two modes at the same time:
producing results today and preparing for
tomorrow. (Ken Favaro, Strategy+Business)

3636
One Philosophy. Two Performance Periods.
Wealth Multiplier Philosophy
We want all stakeholders to
participate in the wealth multiple
they help create.
 Fair
 Prudent

3737
Correlated Results. Companion Rewards.
 Short-Term focuses on
rewarding profit
 Long-Term focuses on
rewarding business value
increase

3838
Central Metric (for funding the plan)
Focus on One of These:
 Profit
 Increase in Profits (% or $)
 (Sometimes: Revenue
Growth)
38

3939
Setting Payout Thresholds
 Base
 Target (budget)
 Superior
39

4040
Sample Bonus Pool Construction
Base Target Superior
Profits $1,200,000 $1,500,000 $1,800,000
Bonus Pool $80,000 $150,000 $220,000
% of Profits 6.7% 10.0% 12.2%
No bonuses below Base; bonuses rise as you move toward
Target and Superior.

4141
Sample Employee Opportunity Table
Sam’s Opp
(Salary = $100k)
% Opp 5% 10% 15%
$ Opp $5,000 $10,000 $15,000

4242
Sample Bonus Pool Construction
Profits $1,200,000 $1,500,000 $1,800,000
Bonus Pool $80,000 $150,000 $220,000
% of Profits 6.7% 10.0% 12.2%

4343
Other Metrics
Minimum profit thresholds
must be met first. Then…
 Department or team metrics
 Non-correlated factors
(customer retention, customer
or client increase, etc.)
 Individual performance
metrics

4444
 Allocation to plan participants
contingent on:
▪ Company Performance – Employees
should have all or a majority portion of
their bonus based on company
performance
▪ Org Unit Performance – A portion of an
employee’s bonus can be allocated based
on department, location, division,
or business unit
Plan Weighting/Allocation

4545
Plan Weighting/Allocation
 Make overall company performance the
primary objective (e.g. ~60 - 100%)
 Organizational unit success should be
secondary objective (e.g. ~40 - 20%)
 Weight the overall incentive:

4646
Individual Performance
 Trend is to disconnect performance from incentive pay
 Performance Management is still important
 Managers more likely to be honest about performance if
incentives are not directly correlated to performance
rating
 If performance is deemed “Unacceptable” discretion
should be utilized to eliminate incentive payment
46

4747
Plan Discretion
What about employees who made
special contributions over the course
of the year?
 Create a discretionary reserve
inside of plan funding
 Reserved for “exceptional”
performers only
 Often held at the top of the
organization (not cascaded down
to individual managers).
 Nomination process.
 Don’t wait until the end of the
year to recognize performance.
 Essentially, these are funded
“spot” awards

4848
9 Long-Term Value Sharing Alternatives
Stock Option
Performance Shares
Restricted Stock
Phantom Stock
Option
Performance
Phantom Stock
Phantom Stock Profit Pool
Performance Unit
Strategic Deferred
Compensation

4949
Grant Equity or
Not Equity?
Full Value or
Appreciation Only?
Yes
Appreciation
Stock Option
Full Value
Performance Based?
Yes
Performance Shares
No
Restricted Stock
No
Reward for Value
Increase or Financial
Performance?
Value Increase
Full Value or
Appreciation?
Appreciation
Phantom Stock
Option
Full Value
Performance Based?
Yes
Performance
Phantom Stock
No
Phantom Stock
Financial
Performance
Appreciation-
Performance Based or
Employee Directed?
Performance
Based
Reward for Profit/Cash
Flow or Other Metrics?
Profits
Allocation or
Objectives Based?
Allocation
Profit Pool
ObjectivesOther Metrics
Performance Unit
Employee Directed
Strategic Deferred
Compensation

5050
A Dual Focus Leads to . . .
Every employee understanding:
▪ The need to focus on both short and
long-term outcomes
▪ The importance of creating “good”
profits and not “bad” profits
▪ The need to adopt a shareholder’s
mindset about their role

5151
5. KEEP IT FLEXIBLE
How can you make sure your pay strategy is agile enough to address
current conditions but enduring enough to be relevant when the
economy rebounds?

5252
The Need for Pay Agility
Compensation Solution
Create a rewards strategy that
is flexible and combine it with
an operational structure that is
enduring.

5353
Flexible but Enduring
 Look at compensation
strategy as you would an
investment portfolio.
 Individual pay
components are your
“asset classes.”
 As things change, adjust
weighting of each asset
class.

5454
Develop a Balanced Approach
The role of each pay component in
relation to others within the
comprehensive compensation
strategy is coordinated and clear—
and reflects the company’s pay
philosophy.

5555
Eight Components of Pay
Benefits
 Core benefits
 Executive benefits
 Qualified retirement plans
 Supplemental retirement plans
Compensation
 Salary
 Performance incentives
 Sales incentives
 Growth incentives
Incentives should be in the form of value sharing.

5656
The Total Compensation Structure
Min Mid Max
1 203,531 271,375 339,219 50.0% 100% 50% 50% 5% Yes 5% $11,141 Unlimited Unlimited 15,000 20,000
2 150,078 200,103 250,129 35.0% 75% 50% 50% 5% Yes 5% $11,141 Unlimited Unlimited 10,000 12,500
3 119,497 159,329 199,161 25.0% 50% 100% 0% 5% Yes 5% $11,141 25 5 5,000 8,000
4 102,632 136,843 171,054 20.0% 25% 100% 0% 5% $6,127 25 5 5,000
5 81,293 101,616 121,940 15.0% 5% $6,127 25 5 5,000
6 69,720 87,150 104,580 15.0% 5% $6,127 15 5
7 58,564 73,205 87,846 10.0% 5% $6,127 15 5
8 50,176 62,720 75,264 10.0% 5% $6,127 15 5
9 44,038 51,809 59,580 5.0% 5% $6,127 15 5
10 37,211 43,777 50,344 5.0% 5% $6,127 10 5
11 30,784 36,217 41,649 5.0% 5% $6,127 10 5
12 23,562 27,720 31,878 5.0% 5% $6,127 10 5
13 19,529 22,975 26,421 0.0% 5% $6,127 10 5
14 17,354 20,417 23,479 0.0% 5% $6,127 10 5
Annual Car
Allow
Grade/
Band Sick Days
Salary Range
Bonus
Target
LTIP
Target
Financial
Planning
Perk
Deferred
Comp
Elegible
Deferred
Comp Max
Match
401k
Match
Max %
Vacation
Days
% Phantom
Stock FV
% Phantom
Stock AO
Health,
Dental,
Life

5757
Finding the Right Balance
Total Compensation Structure
Name Title/Position Tier Salary
Short-term
Incentive
Target
Long-term
Incentive
Target
Total Direct
Comp
H&W
Annual
Value
QRP
Annual
Value
Security
Plans Annual
Value
Total
Indirect
Comp TRI
Jason Smith CEO 1 $ 300,000 $ 120,000 $ - $ 420,000 $ 18,200 $ 8,000 $ - $ 26,200 $ 446,200
Lucy Jones VP Marketing 2 $ 210,000 $ 45,000 $ - $ 255,000 $ 16,200 $ 7,000 $ - $ 23,200 $ 278,200
Rick Miller VP Sales 2 $ 160,000 $ 85,000 $ - $ 245,000 $ 9,200 $ 6,000 $ - $ 15,200 $ 260,200
Janice Johnson CFO 2 $ 195,000 $ 40,000 $ - $ 235,000 $ 10,200 $ 5,000 $ - $ 15,200 $ 250,200
Maria York Director 3 $ 160,000 $ 10,000 $ - $ 170,000 $ 12,200 $ 4,000 $ - $ 16,200 $ 186,200
Frank North Director 3 $ 150,000 $ 10,000 $ - $ 160,000 $ 11,200 $ 3,000 $ - $ 14,200 $ 174,200
Ricardo South Director 3 $ 140,000 $ 10,000 $ - $ 150,000 $ 7,700 $ 2,000 $ - $ 9,700 $ 59,700
Simon Lewis Director 3 $ 130,000 $ 10,000 $ - $ 140,000 $ 8,700 $ 2,500 $ - $ 11,200 $ 151,200
$ 1,445,000 $ 330,000 $ - $ 1,775,000 $ 93,600 $ 37,500 $ - $ 131,100 $ 1,906,100
Can we
afford to
make these
payouts?
Should we
shift to a
longer-term
plan?

5858
What is the Right Allocation?
Total Rewards Investment (TRI) Allocation
TRI looks at each component of pay as a percentage of the total
Name Tier Salary STI% LTI% H&W% QRP% SP% TRI
Jason Smith 1 67.2% 26.9% 0.0% 4.1% 1.8% 0.0% $ 446,200
Lucy Jones 2 75.5% 21.4% 0.0% 7.7% 3.3% 0.0% $ 278,200
Rick Miller 2 61.5% 53.1% 0.0% 5.8% 3.8% 0.0% $ 260,200
Janice Johnson 2 77.9% 20.5% 0.0% 5.2% 2.6% 0.0% $ 250,200
Maria York 3 85.9% 6.3% 0.0% 7.6% 2.5% 0.0% $ 186,200
Frank North 3 86.1% 6.7% 0.0% 7.5% 2.0% 0.0% $ 174,200
Ricardo South 3 87.7% 7.1% 0.0% 5.5% 1.4% 0.0% $ 159,700
Simon Lewis 3 86.0% 7.7% 0.0% 6.7% 1.9% 0.0% $ 151,200
Salary STI% LTI%
H&W% QRP% SI%

5959
Offering Options
Sample
Position
Salary Short-Term
Value Sharing
Long-Term
Value Sharing
Total
Option A $120,000 $0 $0 $120,000
Option B $100,000 $20,000 $30,000 $150,000
Option C $80,000 $40,000 $80,000 $200,000

6060
Focus on the Future
 Here’s the short-term
picture
 Here’s our vision for the
future.
 Here’s how we plan to
get there.
 Here’s the role we need
you to perform.
 Here are the resources
you will be able to use.
 Here’s our philosophy
about pay and rewards.
 Here are the specific pay
programs you’ll
participate in.
 Here’s how our pay
programs will work for
you if we achieve our
plan.

6161
Employee Value Statement
Year 1 2 3 4 5
Targeted
Results
100% 100% 100% 100% 100%
Salary $160,000 $166,400 $173,056 $179,878 $187,177
STVS $64,000 $66,560 $69,222 $71,991 74,871
LTVS
(EOY)
-- $74,000 $186,000 $311,000 $448,000
401(k)
@7%
$17,120 $36,123 $57,169 $80,428 $106,086
Total
Cash
$224,000 $232,960 $242,278 $251,970 $262,048
Wealth
Accrual
$17,120 $110,123 $243,169 $391,428 $554,086
Total
Value
$241,120 $567,083 $942,407 $1,342,636 $1,767,343

6262
5 Rules
Separate
Temporary &
Permanent
1
KnowYour
Philosophy
2
EmphasizeValue
Sharing
3
Keep it Simple
4
Make it Agile
5

6363
Post Webinar Intro
5 Minutes:
 Who We Are
 What We Do
 How We Do It

6464
Take advantage of a one-half hour
consulting call with a VisionLink
principal at no charge.
Indicate interest on final survey.
Request Consultation & Take Survey
Request a copy of our
slides, report,
complimentary consultation
and BonusRight demo.
We value your input.

6565
www.BonusRight.com
www.bonusright.com

6666
 New SaaS tool
 Build and manage
your bonus plan
online.
 Indicate on survey
if you would like
to schedule a
demo.

6767
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www.vladvisors.com
Subscribe to our blog!

6868
Special Offer
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Request your copy on the final survey.

7070
Ken Gibson
(949) 265-5703
ThankYou!

7171
Post Webinar Intro
5 Minutes:
 Who We Are
 What We Do
 How We Do It

VisionLink’s Focus: Help Business Leaders Build and
Sustain a High Performance Culture
Accelerate performance through pay strategies that
transform employees into growth partners.

If you do that…
• Quality of talent will improve.
• Employee engagement will expand.
• Performance will be magnified.
• Business growth will be accelerated.
• Shareholder value will increase.

7676
Ken Gibson
(949) 265-5703
ThankYou!

5 Rules for Managing Pay During a Hiring Surge

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