Business Strategies: Stake Your Compensation Claims

Motivation is more than showing employees the money. Compensating employees - though salaries, benefit programs, bonuses and incentives - shows appreciation for their efforts and helps retain key workers.

"Many employers believe that money is the major reason why people work," noted Larry Fish, president, GreenSearch, Atlanta, Ga. "Employees, on the other hand, place a higher value on things like dignity, respect and a real sense of appreciation for the contributions that they make to their companies."

A happy medium of thank-you dollars and a sense of appreciation is an employers best bet, however. Employers should ensure compensation is directly proportionate to effort, and create a system that defines workers' job duties and goals, and communicates their progress, Fish recommended.

"Begin by defining the goal you wish to achieve vs. spending time telling people how to get it done," he stressed. "Next, install a system of measurement for the things you want to accomplish." He suggested calling this method a scorecard, which can both measure shortfalls in achieving goals as well as record goals that have been exceeded by a substantial amount. "People need to know how they are doing in clear, unambiguous terms."

Finally, he said that employers should follow up with employees. Don't just create the systems - use them. "If your goals are financial in nature, and most should be, schedule regular monthly meetings with your folks and let them see how they are doing and what they need to do to take corrective action and improve," he said. "The day you lose interest in these meetings is the day your people lost interest in what you are trying to achieve."

Remember, people act in a "cause and effect manner," Fish emphasized. When they see the cause - clear goals, necessary tasks and rewards they can achieve from these goals - they will follow the road of "effects" to reach these bonuses and incentives.

Roundtable discussions at Lawn & Landscape's Business Strategies Conference in Scottsdale, Ariz., covered employee compensation, exploring various ways of handling a difficult compensation scenario. Designed by Fish, the Power Lunch Series, "Compensation: Is Perception Reality?" sparked discussion among contractors regarding their human resources management.

How would your team handle the following scenario?

COMPENSATION SCENARIO. The Languishing Hills Group is a 23-year-old independently owned, full service landscape company operating in 12 states east of the Mississippi. It specializes in providing construction services primarily to commercial customers and has a mix of 80 percent commercial and 20 percent high-end ($500K+) residential clients. Founded by Ted and Bud Katz, Languishing Hills has built a loyal customer following, enjoys a rich reputation and avoided being caught up in the merger and acquisition frenzy over the past five years.

Ted is the "operator" and Bud is the "numbers guy." Because of Bud's former corporate background, Languishing Hills has a business plan, good controls and adequate financial reporting capacities. However, Ted, who is the majority partner, likes to "fly by the seat of his pants" and trust his instincts on such matters as expansion, capital investment and employee rewards. This drives Bud crazy. It has caused more than one closed-door meeting and occasional public outbursts between the brothers, especially on the topic of employee compensation. They agree that the company has a lot more growth opportunity in its current markets and have no plans to enter new markets for at least three years. Recently, Ted wanted to add retail garden centers to the array of services, but Bud talked him out of it.

Languishing Hills has nine full-service branches located in major metropolitan areas in which they operate, each staffed with a branch manager. The average tenure of the branch managers is 6.5 years and the turnover during the last five years among this group has been less than 25 percent. Bud says this job is paid at "market" on base salaries, while Ted is always worried about low pay being a cause for turnover and is concerned about this key role at Languishing Hills. They have had an incentive plan in place for three years for the branch managers, and the plan's primary driver is pre-tax profits for the company as a whole. Meetings with branch managers as a whole are twice per year.

During 1999, Languishing Hills had its best year ever and year-end payouts for the incentive plan averaged 175 to 225 percent of base pay for the branch managers. Life was good! Moving forward, the FY 2000 business objectives were developed by Bud, and he took a more aggressive approach toward Languishing Hills' performance, expecting the market to stay hot. Unfortunately, for a variety of reasons, the markets in which the most profitable branches operated took a nosedive and the company just barely made minimal plan attainment.

The branch managers' incentive payout for 2000 was a glimmer of the previous year. The highest incentive payout made was 21 percent of base pay and the average was 12.5 percent of base pay. Some branch managers' earnings were $150,000 less than the previous year.

Shortly after FY 2001 began, Mike Turner, the most respected branch manager at Languishing Hills approached Ted and made a comment about how many of his peers in other companies earned more than him and he wanted Ted to "Show me the money." Ted agreed to consider Mike's comments and get back with him within two weeks. Ted discussed Mike's comments with Bud, who immediately dismissed his opinion. Ted persisted and got Bud to agree to think about it.

DISCUSSION QUESTIONS. Fish suggested discussing the following points of this scenario.