It may be a while before we face the holiday season again, but since sooner is always better than later, now is the time to address what has come to be known as "the Christmas bonus." Every year someone calls me the Grinch because I'm the guy who points out the ineffectiveness of the holiday bonus. Employee benefit advisers, brokers and consultants need to recognize there exists more creative vehicles that can serve as incentive programs to drive and maintain growth, as well as recruit and retain key talent.

Many studies indicate that the impact of a holiday bonus on employee focus is typically two weeks prior to and one week after receipt. Further statistics point to the increase in resignations shortly after the bonus check is cashed. What's wrong with this picture? Here's the truth: You should be aiming for a rewards strategy that stimulates employee focus 52 weeks of the year. Also, a properly designed rewards program will attract and retain talent, significantly reducing the loss of employees who are critical to the success of the company.

 

Growth strategy

Fundamental to any growth strategy are three factors: fulfilling the original business plan (mission, values and company vision); the emergence of sustainable growth patterns (revenue development); and a suitable return in capital for company shareholders.

In order to best achieve those elements for growth, key employees must be on board - and the most direct line to meet that goal is by fostering a culture of employee ownership. In other words, employees have to draw the same conclusions as you about what's important. But for that to occur, ownership mentality must be personalized.

Most employees recognize the bottom line to a company's success is, well, the bottom line. But it's also vital that they understand how their specific contribution makes that happen. Without this critical engagement on the part of employees, their focus will be off center; therefore, compensation should be tied to results that are quantifiable and measurable.

Here's the big question: What are your clients getting right now in return for what they are paying out? I'll answer that for you. They're getting the current result, whatever that may be. But if the results you wish to help them achieve this year are not measurably different than what they had last year, what are you going recommend for next year to drive a different performance level?

Growth implies different results, and by extension the strategies you've employed to achieve current results can't be the same in the future should a different result be desired or expected. Since compensation is one of the strategic tools in a business' arsenal to affect change, benefits advisers, brokers and consultants looking to develop different performance results can't expect to achieve forward motion if the growth rewards programs don't match up to their goals.

 

Getting results

At the end of the day, compensation can only do its part in changing results within an organization if the model and compensation plan are understood and valued, if results are achievable, and if employees are committed and feel a sense of ownership. Results must be concrete, measurable and communicated regularly. If these elements fall into place and key people are being rewarded appropriately business leaders will also know what they're getting in return.

At the heart of an effective rewards and incentive plan is the proper identification and solidification of key compensation philosophies and priorities. This helps to achieve a unified financial vision for growing a business. It can distinguish the relationship between company and employee wealth-building goals; establish the framework of an employee and executive compensation philosophy; and identify factors which will impact desired performance.

The importance of a rewards program that addresses the growth and wealth building needs of both the company (ownership) and the individual (key employees) cannot be overstated, for far too often a "disconnect" exists between the two.

 

Self-evaluation

An overall diagnostic of the existing rewards program is best conducted by gathering data that addresses the business owner's vision for the company's future and growth expectations. Key staff members should be asked to specify their individual objectives in relation to the company's performance and anticipated growth. Ultimately, this process will help to ensure that the company's compensation philosophy is built upon a proper and lasting foundation.

There are many potential components of a long-term incentive program, including deferral plans, phantom stock and company stock options. These are sound compensation avenues that clearly demonstrate allegiance to key employees, but all too often company heads can get hung up on the word "compensation." The framework of an incentive program becomes compromised when the company looks at compensation as an expense, not as an investment.

The fundamental focus of an incentive plan becomes blurred when its full potential value is not regularly and powerfully communicated. Here is where corporate leadership needs to focus the message in a laser-like fashion. Failure can also lurk in the absence of clear standards and methods that establish values consistent with the company's growth needs and employee expectations; without this critical communication in place key talent may depart if offered a better value proposition - or a more clearly defined one - elsewhere.

 

Structure

Most organizations utilizing short-term incentive components as part of an overall ownership approach will weigh the incentive based upon a tier system. As such, tiers are established for different classes of employees in conjunction with their impact on various performance measures.

Long-term incentives, which can include shares of stock, stock options, phantom stock, a profit pool or incentive deferred compensation, are usually designed for top talent retention.

Key among the intentions of long-term incentives is to create a focus on attaining the company's long-term financial goals and engender a sense of investment in those goals. Sustained growth and hitting those important goal milestones occur when key employees are motivated to focus on performance, leading to execution and a pattern of continued achievement - in the long run, a win-win for both the company and its employees.

So here's the bottom line from this "Grinch." There's nothing wrong with the tradition of the holiday bonus, but with the right mix of incentives, the celebration can last year round.

Moniz is president of Northeast VisionLink, an executive compensation design and management firm. Reach him at jmoniz@vladvisors.com.

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