Creative Compensation

Creative compensation :
When it comes to employee compensation, most managers are busy asking: "What do
I have to pay to?" That is not an easy question to answer. A better question might be:
"What do I want my compensation package to say?"
Whether you realize it or not, it is already saying a lot. No matter what compensation
elements you use, they all carry a message.That message is important.
Compensation packages can be linked to business structure, employee recruitment,

retention, motivation, performance, feedback and satisfaction. Compensation is
typically among the first things potential employees consider when looking for
employment. It is important, therefore, to give a lot of consideration to your business's
compensation structure.
After all, for employees, compensation is the equivalent not to how they are paid but,
ultimately, to how they are valued.
What is a compensation package?
It's easy to think "dollars per hour" when thinking about compensation. Successful
compensation packages, however, are more like a total rewards system, containing
non-monetary, direct and indirect elements.
Non-Monetary Compensation can include any benefit an employee receives from an

employer or job that does not involve tangible value. This includes career and social
rewards such as job security, flexible hours and opportunity for growth, praise and
recognition, task enjoyment and friendships.
Direct compensation is an employee's base wage. It can be an annual salary, hourly

wage or any performance�based pay that an employee receives, such as
profit-sharing bonuses.
Indirect Compensation is far more varied, including everything from legally

required public protection programs such as Social Security to health insurance,
retirement programs, paid leave, child care or housing.
Employers have a wide variety of compensation elements from which to choose. By

combining many of these compensation alternatives, progressive mangers can create
compensation packages that are as individual as the employees who receive them.
Direct Compensation Alternatives
 Basic Pay: Cash wage paid to the employee. Because paying a wage is a
standard practice, the competitive advantage can only come by paying a higher
amount.
 Incentive Pay: A bonus paid when specified performance objectives are

met. May inspire employees to set and achieve a higher performance level and
is an excellent motivator to accomplish farm goals.
 Stock Options: A right to buy a piece of the business which may be given to
an employee to reward excellent service. An employee who owns a share of
the business, or just a few animals or acres, is far more likely to go the extra
mile for the operation. For example, very few people leave their own gates
open.
 Bonuses: A gift given occasionally to reward exceptional performance or for

special occasions.
 Bonuses can show an employer appreciates his/her employees and ensures that
good performance or special events are rewarded. Some indirect compensation
elements are required by law: social security, unemployment and disability
payments. Other indirect elements are up to the employer and can offer
excellent ways to provide benefits to the employees and the employer as well.
n a tight labor market, indirect compensation becomes increasingly important.

Businesses that cannot compete with high cash wages can offer very individualized
alternatives that meet the needs of the people you want to employ. Such creative
compensation alternatives are the small business's competitive advantage.
Indirect Compensation Alternatives

 flexible working schedules
 elder care
 retirement programs
 moving expenses
 insurance (health, dental, eye)
 subsidized housing
 paid leave (sick/holiday/personal days)
 subsidized utilities
 tickets to events (ball games, concerts)
 magazine subscriptions
 boots and clothing
 laundry service
 company parties
 use of farm trucks, machinery
 farm produce/foods/meals
 cellular phones/pagers
 child care
 use of farm pastures and gardens
To build and implement an equitable wage structure can be difficult. To make the
process easier, consider the following checklist:
1. Decide what you want your compensation package to do.

1. recruit new employees
2. motivate current employees
3. reward well-performing employees
4. minimize risk of violating federal laws
5. build employee loyalty
6. any combination of the above
2 Determine your internal wage structure; either:
1. evaluate the jobs

2. evaluate the employees
3. create competency groupings
3 Talk to your employees about their indirect compensation needs:
1. health insurance
2. paid vacation
3. housing
4. child care
5. retirement planning
4 Structure your total rewards system, including:
1 indirect compensation based on your employee's needs and your compensation

objectives
2 direct compensation based on labor market information and your compensation

objectives
5 Implement your new system, remembering to:
1. communicate with your employees about

their needs
2. review your compensation package
regularly�make sure it is fair, equitable
and competitive
3. be flexible and innovative to maintain a
competitive advantage
4. maintain both internal and external
equity
Six Creative Compensation Tactics
Now that you understand total compensation and have set some goals for your
compensation strategy, you can get to work building your total compensation package.
Here are six unique compensation tactics you might opt to include:
1. Delayed signing bonuses

Many companies offer a large signing bonus as a particularly enticing component of the
compensation package. However, a highly-effective yet often-overlooked
compensation strategy is to offer a deferred bonus. For example, offer a $5,000 signing
bonus up front with an additional $5,000 bonus granted at the six-month mark. This
way the signing bonus works not only as a compensation tool but also as an employee
retention tool.
2. Think Beyond Cash Incentives

Rather than offering a performance-based cash incentive, consider offering a different
incentive such as an annual company trip. Other great ideas for incentives include:
bonus vacation time, sports-related activities such as group outings to a game, or free
catered lunch. Any of these incentives can add variety to total compensation and
provide tangible incentives for employees to work towards.
3. Employee Stock Ownership Programs (ESOPs)

In an employee stock ownership program you offer employees stock in the company as
a benefit or performance-based bonus. This program helps align an employee with the
long-term company vision, as they become personally invested in the company’s
growth.
4. Phantom Equity
Unlike ESOPs, phantom equity does not transfer any of your company ownership to
employees. Rather, it’s a contractual agreement which gives your employees a right to a
certain percentage of the profits/proceeds of your company. This process allows you to
incentivize long-term commitment and high performance without giving up any
ownership of the company.
5. Employee Discount Program

An employee discount program is a great way to provide additional incentives beyond
an employee’s base salary. Employee discount providers will partner with your
organization to offer your employees competitive discounts on retail goods, phone bills,
hotels, and much more. Studies show that Millennials, who are often on a tight budget,
are particularly enticed by attractive employee discount programs.
6. Paid Training Stipend

Including a training stipend in an employee’s compensation package accomplishes
three things:
1.Shows your employees that you want to invest in them and their career success.
According to a study done by Deloitte, most loyal employees believe their company offers
a lot of training and support.
2.Develops your employees, so they can perform their job more effectively and become
strong leaders.
3. Increases the total compensation value of your employee benefit package.
Nicknamed the “Happy place to work”, in 2014 Google was named as the best
company in the world to work for by the Great Place to Work Institute.
What’s their secret?
A human resources management policy based on OKR (Objectives and Key Results).
This method is coupled with an innovative and highly motivational system of variable
pay, and it’s an example that many small and intermediate-sized businesses could
benefit from emulating.
HOW ARE STAFF COMPENSATED?

Compensation for “Googlers”, as employees of this global company are known, is
made up of a fixed segment (normal salary) and a variable segment (bonuses). The
average salary of a Google employee is $ 128,000 €/year, or around $10,700 per
month. For bonuses, Google offers:
 “Peer Bonuses”
These are bonuses of 150 dollars, which the employees can transfer to one of their
colleagues. The only criteria: the extent to which the employee has contributed to
Google’s development.
 Performance Bonus
This bonus is defined based on three variables: the employee’s job position, their
performances (or results obtained) and a multiplier rate that can be 15% or more of
the fixed payroll. As a result, Google CEO Sundar Pichai received a bonus of 200
million dollars in stock options on February 2016, which was awarded in recognition
of the 45% rise in Google’s revenues in 2015.
 Collective Bonuses
These bonuses are awarded periodically to all Google employees, based on the
various bonus programs in operation throughout the multinational’s various divisions.
In 2007, all employees received a vacation bonus of 1000 dollars. In 2010, then-CEO
Eric Schmidt offered an increase of 10% of salary as a collective bonus, having put
the question to his employees.
WHAT DOES THE OKR METHOD OF INCENTIVE COMPENSATION CONSIST

OF AT GOOGLE?
The OKR (Objectives and Key Results) method was developed as a motivational and
management strategy by Google HR, but comes from another American multinational:
Intel. The concept was introduced to Google by John Doerr at a time when this
globally-renowned company was still just a humble start-up.
The method consists of:
1. Defining an objective that is linked to a full set of key results. These key
results must number no more than 4 - 6. Above that, it becomes too difficult
for the employee to achieve them, and they risk abandoning certain targets or
burning out in mid-flight.
2. Defining a grading scale for these results in order to assess the extent to
which the objective has been achieved. At Google, the grading scale for key
results ranges from 0 to 1.
3. Evaluating key results in order to determine the extent to which objectives
have been achieved. The ideal grade aimed for is around 0.6 or 0.7 per result.
A grade of “1” indicates that the results were too easy to achieve. Less than
0.5 indicates that the employee has set themselves objectives which were
impossible to obtain, or that they need to improve their productivity.
4. Rewarding employees according to their performance, based on the
percentage of achievement of the OKRs.
In effect, explains Rick Klau (Google Ventures), this method allows the company to
set precise and specific objectives for each employee. The OKRs are defined by
communal agreement between the employees and their direct managers at various
levels of the company. The performance period is either quarterly (quarterly OKRs)
or annual (annual OKRs).
In addition, employees have access to the OKRs and can view the achievement levels
of any Google team member. By making the results public, all employees can monitor
the progress levels of their peers or their bosses.
THE GOOGLE OKR METHOD: WHAT ARE THE ADVANTAGES?

The OKR method behind Google’s incentive compensation system has a number of
visible advantages.
This system:
 Creates a climate of trust and transparency within the company, as everyone

can see everyone else’s OKR stats.
 Encourages employees to outdo themselves in order to get the best possible
assessment score, and therefore a higher individual bonus.
 Strengthens collaboration between team and their managers, as objectives
are defined collectively.
 Enables employees from the same department to work together and help
each other to obtain objectives as quickly as possible.
The OKR method has proven to be worth its weight in gold at Google. It can also help
to boost motivation and employee results in SME. As a first step, you’ll need to
define suitable objectives and decide on a calculation method for the bonus scheme in
question.

Creative Compensation

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Creative compensation :

Compensation packages can be linked to business structure, employee recruitment,

What is a compensation package?

Non-Monetary Compensation can include any benefit an employee receives from an

Direct compensation is an employee's base wage. It can be an annual salary, hourly

Indirect Compensation is far more varied, including everything from legally

Employers have a wide variety of compensation elements from which to choose. By

 Incentive Pay: A bonus paid when specified performance objectives are

 Bonuses: A gift given occasionally to reward exceptional performance or for

n a tight labor market, indirect compensation becomes increasingly important.

Indirect Compensation Alternatives

1. Decide what you want your compensation package to do.

2 Determine your internal wage structure; either:

1. evaluate the jobs

3 Talk to your employees about their indirect compensation needs:

4 Structure your total rewards system, including:

1 indirect compensation based on your employee's needs and your compensation

2 direct compensation based on labor market information and your compensation

5 Implement your new system, remembering to:

1. communicate with your employees about

Six Creative Compensation Tactics

1. Delayed signing bonuses

2. Think Beyond Cash Incentives

3. Employee Stock Ownership Programs (ESOPs)

5. Employee Discount Program

6. Paid Training Stipend

HOW ARE STAFF COMPENSATED?

WHAT DOES THE OKR METHOD OF INCENTIVE COMPENSATION CONSIST

THE GOOGLE OKR METHOD: WHAT ARE THE ADVANTAGES?

 Creates a climate of trust and transparency within the company, as everyone

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