Not every employee is capable of selling products or services to potential customers.   The selling process requires an employee to possess a particular set of interactive and persuasion skills, as well as a compatible personality profile (garrulous, self-confident, unafraid of rejection, etc.).   While some employees enjoy the challenge, most want no part of it and only a minority are neutral about the idea.  For those tasked with a selling job it’s typically a reflection of individual personality that would generate success or struggle.

For compensation practitioners having the right person involved in the selling process can be more important than the compensation program itself, because dangling potential rewards in the face of the wrong person can be a waste of money and represents lost business opportunity.

It’s All About Motivation

Success in the selling process depends upon the right motivating elements aimed at the right employee personality.  To do this correctly within a sales compensation program requires the design to take that into account, to focus financial rewards toward whatever engages, whatever motivates the employee to perform in the manner the organization wishes.

Costly mistakes can be made when an organization assumes that all employees will react in the same fashion to the same stimulus.

Have you considered what motivates your sales employees?  Chances are that not everyone would have the same answer.

• Money:  Everybody’s first response is that all you have to do is offer the opportunity for a cash bonus and the employees are off and running.  But in chasing the almighty dollar, employees could also drive your company in the wrong direction – even off a cliff – because they may take the path of least resistance (difficulty) and greatest financial reward.  If those activities fail to align with what the company needs to assure business success, money is not only wasted but used to reward behavior that could be detrimental to the company.

Do you really want to reward the sale of a money-losing or low margin product?

• Mission:  Especially prevalent with not-for-profit organizations, many employees have a “fire in the belly” belief in what the organization espouses, be it products, services or awareness.  This internal value system often provides motivation enough to ensure concerted efforts.  In such a scenario, money is deemed less important (though not dismissed) as a motivator.  Employees are already motivated by the worthiness of the organization’s mission.

Helping others or helping a cause can be reward enough for some employees.

• Brand identification:  If you identify with the organization’s offerings and have a belief in what you are selling, you’re already halfway to becoming an effective sales representative.  For these employees the ingrained belief in what they sell is already present; they just need a  bit of training.

Employees are proud to be associated with a particular product or service.  They’re always wearing the logo shirt and are the organization’s biggest fans.

• Self-motivation:  Here the employee possesses an internal reserve of self worth that helps to make excellence its own reward.  It’s a state in which success in one’s endeavors is self-fulfilling.  The reward system for these employees is often a nice addition, but isn’t necessarily the prime motivating factor.

A certain level of performance would be forthcoming, no matter what financial rewards are offered.

• Challenge:  The mindset here is the joy of climbing the hill, especially if there’s a pot of gold at the peak.  Similar to self-motivation, some personality profiles relish a good challenge, and if you provide a reward for goal attainment, so much the better.

For such employees, the game is always afoot.  They enjoy breaking down barriers, solving problems and grabbing for the brass ring.

• Competition:  The fierce desire to be better than others; where winning (which means that others lose) is critically important.  Note: such employees might not be effective team players.

Sometimes this motivational factor is less about achieving company goals than simply doing better than other employees.  Like a loose cannon, these players may have their own definition of winning, which may not be synonymous with yours.

The takeaway point here is to understand what motivates your employees and then to place your rewards in front of them in a fashion that leads and directs their behavior.

Because if you design your incentive program with the wrong assumptions about what engages your workforce, you’ll risk missing your targets, misspending your financial assets and perhaps not even achieving the required level of success – regardless of the money paid out in rewards.

Designing A Better Carrot

When putting together the elements of your incentive program it would be worth your effort to focus rewards in a manner that recognizes the type of activity and performance you’re aiming for.   That sounds like a simple and straightforward concept, yet is all too often missed by plan designers.

• Change in behavior:  Providing an incentive opportunity should hinge on performance that you would not ordinarily receive.  Don’t waste money paying extra for what you can gain for free.

• Longer term focus:  Building relationships is often just as important as making a quick sale.  Repeat and additive sales are much easier to achieve than finding a new customer.

• Worthwhile rewards:  If the reward isn’t deemed worthwhile (“why should I put myself out for so little?”) the motivational factor will be diminished – leaving you with only employee self-motivation to rely on.  In such a case your incentive plan would be viewed as worthless.

• Reasonable targets:  If the employees don’t see their performance targets as “reasonably attainable,” their effort and engagement will suffer.  They should have an expectation that they can succeed and that they can reach their target.  Without that belief no incentive plan in the world will be able to stimulate the right degree of motivation.

To motivate sales employees to achieve a win-win solution, where they deliver the right performance and achieve financial rewards, while the company achieves operational success, you have to push the right buttons.  But always be mindful that it’s not as easy as simply waving a dollar bill.

What do you do when an employee informs you that they have just achieved an academic milestone:  a college degree, an advanced degree, or even a certification from a professional association?  After offering congratulations, do you take them to lunch, perhaps tell them to take the next day off, or do you do more?

Do you provide a specific reward for that accomplishment?  Perhaps a salary increase, or a promotion?

Many employees seem to expect that, when they receive academic or professional credentials – something that comes with a piece of paper suitable for framing – that they should receive an increase in pay, a bump in title, if not an outright promotion.  “I’m more valuable to you now,” they seem to imply.

However, if you don’t need another MBA graduate, or a senior engineer, legal counsel or whatever, should you pay extra to have one?  Should you increase your labor costs to gain something that you don’t need?

Some managers feel compelled to react with salary / title increases; they want to acknowledge the employee’s personal achievement and avoid the risk of de-motivating good people.  They especially don’t want to lose someone who is ambitious and career-oriented.  Such a loss might be perceived as a mark against their own management capabilities.

But is raising the cost structure a good business decision, or a feel-good, I-want-you-to-like me emotional knee-jerk reaction?  Do these managers have the right answer to the “why more money?” question?

If you already pay for educating your employees – through some form of tuition reimbursement – should you be expected to follow up with even more expense once the company-paid courses run through to completion?  Chances are you don’t require employees to remain with you for a defined period afterward, right?  So, technically they could use your money to prepare themselves to work somewhere else.  Where is the fairness in that?

Pricing a piece of paper

Have you asked yourself, what’s the market value of an employee with a higher education or certification level?   Compensation surveys don’t differentiate on the basis of whether employees have a particular degree or other credentials.  In some cases educational requirements are mandated before one can assume certain roles (Engineer, Attorney, Nurse, etc.).  At the end of the day what the market highlights is the common pay rate for experience, for knowing the job and being competent at performing it.

Does the market say a premium should be paid?  No.

Perhaps a promotion then?   But job grades are not typically influenced by formal education levels either, and no credible job evaluation system scores on that basis – only equivalencies.  Job evaluators recognize that, while what the employee knows how to do (job knowledge) is critical, how that knowledge was attained is less important.  The professional seasoning of life experiences does count, trumping the piece of paper.  Book learning is not an evaluation factor.

If ultimately the newly certified or graduated employee returns to the same job function, their day job, then what does the company receive for granting extra money?  If the job role remains the same, where’s the ROI to balance an increase to fixed costs?

What you need vs. what you have

If you use any sort of position control process, you should know how many heads for each job the organization needs to fulfill its mission.  When you create more heads than you need, your costs will increase but likely not your effectiveness.  So why would you pay for an extra MBA, senior engineer or legal counsel – when you don’t need them?

You can acknowledge an employee’s personal achievement without increasing your fixed costs and possibly creating disruptive internal equity concerns among other employees.  Remember that fair and balanced treatment is a perceived state-of-play, and the employees are always watching.

So offer your congratulations, take the newly minted certificate holder out to lunch, and give them a day off.  Tell them that they’re now eligible for advancement when a higher position comes available – but have a care before raising your fixed labor costs without a corresponding increase in ROI.

They may be more valuable to you – but that is for tomorrow.

Recently I was asked by a U.S. client why I recommended that they create an international assignment letter for their expatriate employees.  After all, they only had a few employees overseas and previously had resisted the call to “play the lawyer card.” They felt that management could effectively deal with the circumstances of expatriate situations as matters came up, and were reluctant to lose what they considered their prerogative – to set terms and conditions as they thought appropriate for each employee.

This is not the first time I’ve been asked that question, as it’s not unusual for small companies or non-profit organizations to send an employee overseas with little more than a verbal agreement and a series of vague assurances.  These organizations wish to avoid bureaucracy and move quickly.  However, often these casual and hurried arrangements have proved painful and expensive experiences:

• The shock faced when coming to grips with actually living in a foreign country, vs. visiting.  The realities of daily life, combined with cultural differences compared against “back home” become quite a wake-up call when no longer insulated by the transitory nature of a business or vacation trip

• The constancy of unforeseen and confusing local situations (medical claims, driving licenses, bank accounts, schooling, language, etc.) proved such a frustrating distraction that employees lost focus on the job – the reason they were there in the first place.

• Relationships with headquarters suffered as the employee asked for repeated consideration (increased payments) to redress what they considered coverage gaps in their terms & conditions.  The trust element was weakened as employees felt they were being short-changed by management.

Coming from an environment where every expatriate was given a detailed assignment letter “before” getting on the plane, I was at first taken aback by the client’s question – because the absence of mutually agreed terms and conditions is almost certain to prove expensive to companies trying to take a “short cut.”

So why is providing an assignment letter a good idea?

• Protection:  Like any contract, confirming the terms & conditions of the assignment protect both parties from misunderstandings, misinterpretations and assumptions – before expenses are incurred.

• Clarity:  Accepting an overseas assignment is a major step for any employee, as well as for family members.  The more you clarify the terms and conditions of the assignment, the more likely you are to ensure a smooth assignment for all parties.

• Cost control:  Defines expenses that the company will pay for and conversely what they will not.  An agreement here will mitigate issues rising once the expatriate is on the ground in the host country.  Concerns raised once the assignee is relocated usually result in increased company costs, as negotiating leverage is lost and the company feels compelled to avoid alienating an expensive investment.

• Standardization:  Your international policy should strive to treat expatriates in the same fashion.  Unique circumstances do occur but the basic principles should be followed for every assignee.

So how bad can it be, playing it by ear and leaving terms & conditions to be developed over the duration of an employee’s assignment?  Aren’t flexibility and quick thinking positive management traits?

Yes, but when courting the inherent risks that accompany an undocumented assignment, you should be prepared for:

• Higher and unbudgeted costs.

• Frequent negotiations to improve the expat’s situation.

• Disgruntled assignees and / or affected family members.

• Greater risk of failed assignment.

Short cuts usually limits the financial and emotional protection the employee and their family will rely on, while the company has committed  substantial monies to place them overseas.  That is not a good management practice.

Terms and Conditions

When preparing an international assignment letter, the following  key elements should be included.

• Title, compensation and assignment duration – critical elements of status and reward in the host country.

• Housing and cost of living allowance – should include the amounts involved and frequency of review.

• Benefit coverage (medical, dental, life, vacation, holidays etc.) – how will home country benefit protections be handled in the host country.

• Relocation –coverage for the employee’s home country residence, to include overseas movement of household goods.

• Property management (as applicable) – what will happen to the home country residence?

• Tax preparation – employee obligations in both countries.  Usually a statement of company liability for “additional” taxes.

• Home leave – how often, and under what circumstances?

• Schooling, language, cultural orientation (as applicable).

• Repatriation – a balance is usually struck here between the employee’s strong concern and the company’s natural vagueness for what the future might bring.

The items listed above represent only a portion of the questions that your expatriate candidate will have.   So should your company consider taking a casual approach to sending an employee overseas, unsupported by a signed assignment letter, be aware of the risks involved.

The one constant theme that Human Resource professionals emphasize when it come to international assignments (expatriate employees) is that the experience costs a great deal of money.  Most of you reading this will simply nod your head at such a cautionary warning, yet not fully understand the why of it.  Perhaps the topic doesn’t concern you, for now, but as managers who may become involved in such adventures down the road, you need to know the cause if you ever hope to manage this expensive proposition.

While companies continue to try new strategies for employing talent overseas (shorter assignments, use of third country nationals, extended business trips, shared responsibilities, etc.) two central premises remain; 1) companies will continue sending employees on overseas assignments, and 2) the cost of those assignments continues to be a big pill to swallow.

Fueling Persistent Cost

If you accept the premise that an employee sent overseas should be kept “whole” (expense-wise) with their home country situation (maintaining their income and expense exposure as if they had never left the U.S.), then certain incurred liabilities naturally fall to the company.

This premise is an important point, and a foundation for future planning.   The  assumption is that the employee should not economically suffer, but neither should they receive a windfall.  To the employee the experience should be cost-neutral.  However the same cannot be said for the organization.  They often have to shoulder a sizeable burden.

First of all, the U.S. is one of the few countries in the world where – no matter where you work – you continue to incur a tax liability on your earnings – while also being liable for earned income taxes in the host country as well.  Uncle Sam demands his share, and will follow you around the globe.

The difference is though, that any additional tax liability would ultimately be paid by the company.

And the second dark cloud over expats?  When establishing the terms and conditions that will govern an international assignment, remember that whatever the company provides the employee beyond what they would have received had they remained in the US, is considered taxable income to the employee.

For example, such taxable items would include, but not be limited to:

• Home leave transportation:  A personal expense (vs. a business trip) that includes air fare, taxis, meals enroute, etc.  Terms and conditions usually allow for one trip per calendar year – though that can be negotiable.

• Cost of living allowances:  That monthly allowance you receive to make up the difference in living costs . . . it’s taxable.

• Housing allowances: If you continue to maintain a U.S. residence (usually advised) the company will provide accommodations, but the cost of that residence is taxable to you.

• Utility payments: From electric to water to phone to garbage collection and more, if the company pays for it then it’s a taxable item.

• Supplementary benefits (host country): Additional local coverage (i.e., National Health Service) to ensure immediacy of care wherever you might find yourself overseas.

And don’t forget the family.  Those expenses paid out to provide dependents with programs or services are also deemed as taxable income of the employee.  For example:

• Language lessons: English may be the international language of business, but not so much in the supermarket.

• Orientation: Teaching the expat and family members about the local culture, how to get along, how to fit in and what to expect, while always useful, is especially important when the local language is not English.

• American-style schooling:  Usually a point of insistence for expats with school age children, the concern here is to ensure that the children are educated in a fashion that would be recognized (credit received) by school authorities back home.

You Don’t Know What You Don’t Know

To compound the internal challenges, too many managers know too little about the true costs of expat assignments.   This ignorance leads to misconceptions, misleading comments to employees and in some cases a too casual consideration of costs.

• “They speak English, so just get on the plane.”  It’s a common refrain, as if we all have the same legal system, health care, work attitudes, etc., and any minor differences could be solved by a short conversation.

• “The money’s been budgeted.”  A classic excuse, as if that in any way justifies an expense.

• “Let’s go around company policy to save money. ”  Short term thinking (and shortcuts) that more often results in a failed assignment.  And how expensive is that going to be?

Having spent five years overseas on an expatriate assignment, here are a few “takeaways” from that experience.

• My first W-2:  The amount was a shock, insofar as the tax preparers lumped together as taxable income everything that the company had provided for me.  That was my first realization of exactly how expensive an expat assignment was to the company.  This is where the 2x and 3x annual salary cost guesstimates were born.

• Local confusion:  My UK Controller was unable to determine the expat costs for his business unit.  Lines of communication between the host country and the corporate-sponsored tax preparers broke down often.  That’s when the finger pointing starts.

• Lost information:  After extensive investigation it seemed that data regarding assignment costs and local liabilities were buried among several budget line items.   Highlighted cost metrics were absent, and no one was watching the store.

• Taxation:  There are many confusing aspects of foreign service credits and reciprocity tax treaties.  Not my area of expertise, but even several years after returning from overseas my tax advisor was still dealing with foreign tax credits.  The back and forth of determining corporate tax liabilities, or avoiding them, is a science unto itself.

So yes, international assignments for your employees can be a very expensive proposition.  But those expenses can be monitored; they can be controlled.

Remember this formula for getting into financial trouble: if you take unknown assignment costs and add the lack of stated assignment ROIs, plus throw in a bit of insensitivity for the realities that expats (and their families) face, that recipe will blow up in your face every time.

That you can take to the bank – for withdrawal, not deposit.

It’s fairly common these days to find articles written by those who advocate increasing the eligibility of employee incentives.  Their recommendation is to push inclusion further and further down the organization’s hierarchy.  What a grand concept!  Everybody wins, right?  The argument is that all employees affect a company’s success, that each and every will chase the almighty dollar of variable pay, and that the opportunity for ever larger rewards will motivate them to do great things.  All of which would in turn deliver improved financial results for the company’s bottom line.

Maybe.

And maybe it’s not such a good idea after all, when you think on it.  Perhaps it’s a bit of a crap shoot as to whether the corresponding higher compensation costs (which would be a certainty) will result in improved financial gains (possible, but certainly not a slam-dunk).   Let’s take a look at the challenges to be faced when you consider a broader eligibility for your annual incentive program.

What’s the plan?

Start with a re-examination of the basics.  What do you consider an incentive element when designing a compensation program?  My definition is a reward for performance that goes above and beyond the norm, or beyond what is expected.  Thus it shouldn’t be a reward for performance that would have occurred as a matter of course.  The intent for offering an incentive is to prompt a change in behavior, to get employees to do something they wouldn’t ordinarily have done, and to get them to do it solely because they have been offered a financial reward to perform both their regular tasks and to accomplish stated business objectives that go beyond the norm.

That should be the plan.

And because these objectives are noteworthy, you would expect that they would differ from year to year, as the needs of the business evolve and adapt to changing business conditions.  This emphasis on annual objectives reinforces the intent that incentives should be designed to reward effort that goes above and beyond those duties listed in the job description.  They should not be repetitive, year after year.  That’s what the job description is for.

Incentive rewards should also not be provided simply because an employee performs their job well.  That particular carrot should be the role of the annual merit increase.  In fact, such an exercise would be considered “double-dipping”, or paying for the same performance twice.  You should not be using an incentive as an inducement to get employees to perform their expected duties.  Again, that’s paying twice to reinforce the same behavior.  It’s also using compensation to replace the leader’s own responsibility to manage their staff.

Some would consider this using pay as a babysitter.

There are times you win, and times you don’t

When deciding on whether to add a variable pay opportunity to an existing base salary compensation model, you need to ask yourself, “what will the company receive in return for the increased costs (variable pay) of an incentive program?”  If you are planning to increase your targeted compensation costs by 5% or 10% of the base salaries of an affected group, how will you answer the ROI question?

Hint:  You had better provide a business (financial) rationale, and not some subjective phraseology like “survey says” or “everyone else is doing it” or even “it’s the right thing to do.’  Management tends to frown on such trivial rationalizations.

It’s also worth noting that employees lower in the hierarchy have a greatly reduced line of sight between their actions and business success.  This entails having to create quantifiable objectives for performance (you are quantifying, right?) that should integrate vertically with department, functional and / or organization objectives.  If you don’t integrate what you’re telling employees to do, you may find yourself paying out incentive rewards when the company as a whole has not been successful.  Keep questioning:

“Yes, you did it, but was it important?”   Did your accomplishment support the broader organization’s objectives?

As a counterargument to the eligibility question I’m often asked about gainsharing programs.  These initiatives can be a useful method of introducing incentives to select employee groups, who have a direct line of sight to potential savings.  They can affect real change.  However, successful plans eventually kill themselves off as viable gains are achieved (low hanging fruit) and payments becomes less and less robust after the easy pickings are collected.

So, to recap, let’s review the business urgency for lowering incentive eligibility to below the management ranks.

• Is the employee line of sight (performance / business results) direct, or remote?

• Can you quantify the expected ROI?

• Can you balance the increased compensation costs against hard financial gains for the company?

• Would the variable pay become strictly an added cost, or would any portion of base salary be at risk?

If you have a reasonable doubt on any of the above points, I suggest you think long and hard before implementing such a program.  It would be very difficult to dig yourself out of that hole.

Compensation programs, once they are developed and implemented, tend to take on a life of their own, and like a perpetual motion machine may keep on ticking, doing what they do, perhaps long past their intended design and usefulness.

Perhaps that’s where the phrase, “we’ve always done it that way” originated.

So it’s worth checking in every now and then.  When is the last time that you reviewed the effectiveness of your management incentive plan?  To see whether the intent of the plan was still being delivered?  Is it still performing to design (risk – performance – reward) specifications, part of your pay-for-performance strategy, or is it simply an administrative reward processing machine?

What does it take to change behavior?

For example, is one of the goals of your incentive program to change behavior?  To encourage and reward performance that is above and beyond normal expectations?  That’s why it’s called incentive, right?  Or else why pay for what would have happened anyway?

That would be what is called “delayed compensation”, as in “it’s been 12 months, where’s my check?”  Such a scenario is definitely not pay-for-performance – but happens all too often, just the same.  With luck your own program focuses on a win-win strategy; that of first achieving company goals, which in turn generates a reward for the employee.

Ok, so you want to change behavior.  You want to light a fire under participants and get them motivated to achieve their quantifiable, measureable objectives.  So how much target incentive would it take to have an employee focus their attention for the entire performance year on achieving their objectives?

If you said 5%, or any number lower than 10%, then I’d suggest you save your money and don’t bother.  Because not enough money is in play to gain an employee’s attention and hold it for an entire year.  Behavior modification will not take hold and root.  What you’ll get instead is the same performance you would have gained without an incentive, only your compensation costs would have risen – with little or no ROI.

Now I’ve been around the block a couple of times, and I know that for employees clamoring to be made incentive-eligible, a measely 5% target incentive is an attraction, especially for managers trying to do whatever it takes for their employees.  However it would be incumbent on the requesting manager to explain upward what the employer would receive for that increased cost of labor.  Because if you can’t show the ROI for the cost increase, your proposal would face a steep uphill battle.

Take a chance, anyone?

There is another way to make the sale, of course, but it’s a strategy rarely taken.   You could lower base salaries a bit (don’t need a 1:1) for those newly eligible for an incentive program, and counter-balance that hit with the opportunity to earn a great more through the incentive scheme.  Most of the time employees would come out ahead by the end of the year (sometimes a great deal), but there is a risk.

And therein lies the rub.  Many employees so affected would raise such a howl of outraged indignation that your ears would bleed.  When pay-at-risk is a reality, it often doesn’t go over well in certain quarters.  The demand instead would be for additive compensation, not true variable pay.

Have a care to avoid that trap.

So as FY10 nears a close and plans are being finalized for FY11, have a look-see at your management incentive plans.   Do they really incent?  Do they provide rewards for achieving company objectives?  And while you’re at it, check whether those targeted rewards are indeed a motivating tool, or are you planning to give away money for the same performance you could have gained for free?

Anyone who has ever been involved in a merger or an acquisition team remembers their first time; how green they were, how much they didn’t know and how much of a challenge it was just getting up to speed.   They didn’t know what they didn’t know.  Most neophytes are shell-shocked by the complexities involved, the myriad moving parts – and when the business target is an international concern, or has a foreign footprint, then it’s often a case of “what do we do now”?

So here’s a due diligence checklist for international M&A deals, one that I wish I had when I was thrown to the wolves for my first overseas acquisition.  This is not breakthrough material, and is likely a derivation of thinking that has evolved for years, starting from the first time one company decided to take over another.   If you’re new to the process, it is a reminder of critical research steps, what mustn’t be forgotten.

This particular list comes via my friends at White & Case LLP (www.whitecase.com), who make this information available as a service to the profession.  What follows is the first of a two-part posting.  It is thorough (some might say “exhausting”), and some search elements may not be warranted in every case, but I think you’ll find it excellent preparation material.

• Compensation & Benefits: Using a separate compensation / benefits checklist, check the seller’s compensation philosophy, compensation / benefits “schemes” or plans, severance plans, retirement plans, bonus plans and perquisites (like meals, housing, country clubs and company cars).  Check individual pension promises, special agreements, grandfather clauses, death / disability benefits, cafeteria plans, service awards, profit sharing, savings plans, employee loans and unusual expense reimbursements.  Check compliance with local laws that mandate extra payments and benefits.  Get an accounting of any transferring plans, and study funding: unfunded, underfunded and “book reserve” plans can cause huge problems.

• Equity and Loans: Look at seller stock options, employee ownership programs, officer / director stock ownership, and employee ownership in affiliates and entities doing business with the seller.  Also check into loans and guarantees to employees.

• Employee Insurance Coverage: Look at the employment-related insurance the seller provides, like employee life / health / accident insurance, hazardous duty / kidnap insurance, payments to state-mandated insurance funds (such as workers compensation insurance), expatriate coverage, and “key man” policies naming the employer as beneficiary.

• Performance Management: Study the seller’s performance management system.  Focusing on key employees, collect data on job evaluations, performance appraisals and problem employees.

• Labor Organization Relationships: What labor organizations represent workers?  Collect organizational data regarding in-house or company-sponsored labor organizations such as works councils, and “European Works Councils”, company unions, health / safety committees, staff consultation committees and ombudsman.  Collect meeting minutes and records memorializing labor disturbances and days lost to strikes.

• Collective Agreements: Look at applicable collective agreements and “social plans” with employee groups.  Go beyond trade unions and check agreements with works councils, worker committees and ombudsmen.  Get expired agreements with terms that still apply.  Do any industry (“sectoral”) collective agreements bind the seller as a non-signatory?  Does the seller participate in any multi-employer bargaining associations?

• Individual Employment Agreements: Look at individual employment contracts with employees, including agreements designated as statement of particulars, non-compete, confidentiality agreement, indemnification agreement, inventions agreement and expatriate arrangements – or at least check these for key executives and look at form / template agreements for rank-and-file employees.  Be sure to look at contracts with contingent workers (service providers like independent contractors, consultants, agents).

• Employee Consents: Check individual employee consent forms.  In jurisdictions like the UK and Korea, employees may have consented in writing to work overtime.  European employees may have consented to processing sensitive personnel data.  Employees may have acknowledged a code of conduct or work rules in writing.

In Part II of this International Checklist for M&A deals we’ll continue to break down the HR due diligence process and provide more reminders of what you should be looking for – what rocks you should remember to look under.

It’s a minefield out there, but now you have a map.

When you’re trying to grab the attention of Senior Management, remember this; they like a good story, especially one with pictures.

If you’re addressing your company’s single largest expense, its employee pay programs, the pictures become charts & graphs that illustrate the points being made.

Pictures capture attention and build memories much better than text or even the spoken word.  Show a picture and the image is locked in, while reliance only on text is a risk.  The drone of dry prose can grow boring and is liable to lose the attention of all but your strongest supporters.

Attention grabbers that work: 1) speedometer style formats that graphically indicate the current situation against the target; 2) the green light, yellow light, red light approach, again to colorfully paint a picture that stays in the mind; and 3) pie charts, tables, even regressed lines that tell a story.

People remember images because they capture the imagination.  They have a harder time recalling (and taking to heart) what you said or what you wrote.  So concentrate on your supportive imagery.

Make the story a short one.  I once worked for a CEO who thought any proposal could be reduced to a single piece of paper, with plenty of white.  “If you need more than that,” he would say, “it’s not such a grand idea.”

You need a plan

However, before you settle on the visual format best suited to sell your case you should focus on the data points necessary to make that case.  Remember the old adage that a dream without a plan is only a fantasy?  If you don’t take action steps to convert ideas to reality, what you’ll be left with is smoke & mirrors – with no results to show for your efforts.

For those of you who have ever been on a diet, you treat it like a project plan, right?  Experts advise that participants write down everything they eat, have goals to strive for and milestones to gauge progress.  It helps to have a plan and to keep score – to know where you stand and where you’re headed.

To accomplish this you should create quantifiable metrics that will collectively illustrate the well-being of your compensation program(s) – and then establish baselines (current state) and targets for each performance indicator.  This key step will help you understand whether your costs are being contained and whether the ROI on employee rewards is at the level your company requires.

Commonly used HR metrics:

• Average salary / wage

• Compa-ratios (comparison of pay to a range midpoint)

• Count of employees per segment (hourly, non-exempt, professional, management)

• Average performance ratings

• Average annual pay rise for each performance rating

• Count and average promotional and “equity” increases

• Voluntary turnover (employees who decided to leave)

• Average employee age and length of service

We could go on and on, but you get the point.  Refine these and any other quantifiable factors by further segmentation – per salary grade, employee group, male / female, etc.  Make sure each metric is measurable, because accuracy counts.  A compelling argument demands precision.

To make these metrics work for you, to avoid a series of make-work arithmetic exercises that do nothing more than capture minutiae, be certain to measure what is important to your business – not simply what data you can capture.  Make sure the importance of the metric is clear to management (or can be made so).  Management needs to grasp the importance of success, to understand why the metric is important and what achievement would mean.

Once you have the right metrics established (collectively called the “dashboard”) and a baseline in place, you will readily see where the problems lie.  Then set specific targets going forward to improve these weak areas, creating periodic milestones to mark your progress.

What to look for

Every organization has different pressure points.  However, if your metrics data indicates any of the following situations, management should be informed.

• Average performance ratings that exceed how the business was rated

• A workforce where key segments are approaching retirement age

• Promotion and “equity” increase activity that overwhelms the merit budget

• Low compa-ratios that indicate you are not paying your salary ranges

• Any figure that is an unpleasant surprise

When you’re telling a story to management, make it compelling – with facts and pictures that feed off critical metrics analysis that form the pulse of your business.  Then bring home the sale by showing how to solve the challenges being faced – with practical strategies designed to end your story on a happy and successful note.

In our last post we introduced you to Step # 4 of the Seven Step Compensation Diet – the need to control the headcount and type of jobs in your organization.  Reward dollars can be maximized by operating a lean organization.  Only staff those jobs required for operational success.  At the same time avoid back door cost increases by refusing to play “title games” that add expense without providing a fair performance “return.”

Success here depends on your ability to track reward dollars and measure your spend against a plan.  To do that you need to have an allowance.

Step # 5: Have a Budget and Stick to it

Have you ever played the board game Monopoly?  Players start with a given pile of money and then it’s spend, spend, spend and hope for the best.  When it’s not your own money it’s fun to see what you can do, because it’s only a game, right?

When Managers have the Keys to the Kingdom though, the authority to spend the company’s money, it’s a different matter.  Your company probably doesn’t look at management spend on employees in quite the same manner as a wheedle-dealing board game.  The costs are real; the implications long lasting.  As management considers effective methods to rein in uncontrolled spending (cutting the fat), they should set up some form of restrictions to which managers must adhere.  No more strolling past Go and Collect another $200.  Thus the budget is born.

An established annual reward budget (pool of money) can be an effective gatekeeper and measurement tool for managers, limiting their largesse and forcing better decision-making.  On a regular basis they can also track the level of spend, as well as the corresponding progress toward adherence to an annual goal.  The basic tenet here: making a series of one-off decisions over time without having a cost meter running will drain your financial resources before your annual needs are met.

Chances are, you can’t go back for more money.

When under pressure Managers are notorious for first reluctantly agreeing to trim their merit spend (note the nodding heads and muted voices of support), only to circle back later with promotions, adjustments and job re-evaluations that more than replace the initial savings.  It is this form of passive resistance and end-around tactics that a fixed budget is designed to defeat.  If you factor in that Managers will always attempt to circumvent whatever system you put in place, you might be able to stay one step ahead.

So save yourself some angst by ensuring that your budget pool includes promotions and adjustments, as well as the annual merit increases.   Some use two separate budgets to better categorize and track activities.  But whatever the case, be careful to limit and track.

By the way, those granted the authority to spend the company’s money should be held accountable as to how that money is spent.  You can measure it.  Adherence to a spending plan should become an assessment factor in a managers personal performance appraisal, an objective indicator of the demonstrated ability to actually manage.

Finally, to ensure that you achieve greater management focus, ensure that the Finance function regularly monitors and reports on those activities (management spend decisions) that impact budget targets.  Managers who know how much money they have, and how much remains, are more careful with it.

If no one is watching, no one is caring.  It is not easy to become a lean organization, and even harder to stay there.

The time will come when you find yourself between a rock and a hard place at work.  Your ability to produce project deliverables will be challenged by staff shortages, multiple projects simultaneously coming due, or the requirement of particular skill sets not possessed by your existing personnel.  And while you are stressing out Senior Management will not let matters slide until circumstances are more convenient.

You need help.  You need it now.  But do you need a hired-gun professional, a consultant?

You could try to find a temporary Compensation Analyst to run some numbers for you, and if that will solve your immediate dilemma you need not read any further.

However, if your challenge is deeper and broader than simple spreadsheets, a proven strategy to ensure success is to obtain the services of a seasoned expert, one who can provide hands-on advice and counsel, who can take data from the analyst and advance your agenda: What does this information tell us?  What can we do now?  What corrective strategies can be employed?

The following circumstances would encourage the use of outside expertise:

• Technical knowledge is not currently available to existing staff (i.e., international, executive, expatriate or sales compensation).  This may not be the time for on-the-job training.
• When the current staff is overwhelmed and you need temporary assistance to take charge and drive your project(s) forward
• Interim replacement for absent staff (separation, leave, etc.).  Someone to fill the gap, holding things together and advancing the agenda until the replacement is secured.

External professionals have the experience and broad perspective to impact your business, not simply report on it.  If used properly and in a focused manner subject matter experts will save you time, money and sleepless nights.

Caution: many professionals currently between jobs (“in transition”) consider themselves temporary consultants while continuing their job search.  Dependent on your time line these individuals may not be able to provide the focus or dedicated support (staying power) that you need.

As you would expect, specialists cost more than general labor, on account of their broad and deep capabilities that are available “on demand”.  However, you should consider whether the expense is justified before you commit.

• An improper one-time “fix” will cost a great deal more over time (dollars, morale, turnover, training etc.) than if the problem was properly corrected in the first place
• Consultants have the seasoning and long service expertise to look past the figures to the root causes and underlying issues
• Someone who has a broad background working with diverse industries, geographies and employee segments will provide a richer perspective as to how best to approach your particular challenges

Of course you can decide to do the work yourself, but that strategy often presents its own challenges.

• Your staff may be slow to focus on projects additive to their full time job, plus they will need to overcome numerous day-to-day distractions.  Project time lines will be drawn out.
• Internals tend to focus on easy-to-achieve short term improvements, like low hanging fruit, vs. what core issue decisions are needed to affect a permanent solution.  This is not solving the problem, but shoving it into a closet – with the other skeletons.
• Managers are often in a hurry to check off the project (problem) as completed (fixed) or “addressed” – the so-called “check mark” management style.
• Internal staff is often restrained in their thinking by experiences limited to the What and Why of their company.  They may not be able to see out of the box into the wider universe of possibilities.

If you have decided to bring in outside experts, exercise care that you utilize them effectively to gain the maximum value:

• Proper scoping of the project saves time and money.  Understand the challenge you need addressed, as confusion here leads to greater expense and longer time lines.
• Scrub your data before handing it over; otherwise you’ll be paying for “grunt” work easily completed by inside staff.
• Monitor work progress, lest you end up with charges for unanticipated (though not specifically prohibited) work.  The grey areas will cost you every time.
• Avoid consultants who are incented by billable hours; they may encourage additional steps that render your project(s) more complex / expensive.
• Be cautious of fancy report formats and four-color charts; you are paying extra for the fluff.

Seasoned external experts have the advantage of concentration; they focus on the project at hand, while avoiding the trap of non-productive time (socializing at work, interruptions, meetings, other distractions from the work at hand).

If you need Compensation expertise to help address your challenges, help you achieve your objectives and partner with you to success, take the step and make the call.  It will be worth it.