Strategic Compensation Plans for AE Firms
Total compensation plans remain a pressing concern for firm leaders in their quest to both retain and attract top-tier talent. The umbrella of Total Compensation encompasses various components, including base salary, overtime, bonus/incentive, benefits, and payroll-related taxes. While every firm leader desires to pay their employees competitively, the ongoing talent war has left some questioning whether they align with industry standards.
Benchmarking against industry standards instills confidence in the compensation philosophy and provides leadership teams with a framework for making more informed decisions about hiring and promotions. It acts as a strategic compass in navigating the dynamic landscape of talent acquisition.
In the realm of bonuses, almost every organization has some form of a bonus plan, either discretionary or non-discretionary. A discretionary bonus plan is done randomly and has no defined policy for how it may be earned; a classic example is a holiday or year-end bonus. On the other hand, a non-discretionary bonus adheres to specific criteria for how an employee earns the bonus or incentive, and it must be included in the calculation for overtime. Interestingly, not all leaders can see a direct impact or result from the company’s bonus/incentive plans, even with a defined plan.
For companies that contract with federal or state agencies, bonus costs are one of the most closely scrutinized and challenged areas of compensation. Establishing a non-discretionary bonus plan becomes imperative to meet the requirements in the Federal Acquisition Regulation (FAR) to qualify. Clear criteria for eligibility, measurable performance metrics, and communication with all employees play pivotal roles in compliance.
The question may arise: Is it worth implementing a bonus/incentive plan when it involves navigating a complex set of rules? Undoubtedly, the answer is a resounding yes! An incentive plan serves as an effective motivator, driving the right behaviors and fostering a results-oriented culture within an organization. Striking the right balance is key – simplicity in the incentive plan ensures quicker adoption and eases administrative efforts.
Incentive payments that are paid more frequently than once a year allow employees to make necessary adjustments to performance more quickly. Moreover, it enables leaders to provide specific examples of how performance can be adjusted, reinforcing the connection between effort and reward. It’s crucial for employees to understand that their direct contributions can significantly impact the attainment of incentives versus trying to achieve a broad organizational goal (such as increasing profitability).
As you consider your incentive plan, questions naturally arise. How do you define a simple incentive plan? How do you streamline the administration process for maintaining the plan? Should there be a uniform set of criteria for all employees, or should different metrics be considered? What are good behaviors to motivate? How do I know if there is a return on the investment of an incentive plan?
Our upcoming webinar, Optimize Performance with FAR Allowable Bonus Plans, will explore these questions. Register today to reserve your spot!