How 3 CEOs use wages and compensation to drive retention

According to the Q4 2022 Vistage CEO Confidence Index survey, 61% of CEOs report that hiring challenges impact their ability to operate at full capacity. While hiring and retention continue to remain top of mind for CEOs, budget planning for the new year has brought new pressures with wages and compensation.

In fact, the November 2022 WSJ/Vistage Small Business CEO Survey revealed that 54% of small business leaders plan to adjust compensation through merit increases, and the same proportion plan cost of living adjustments. One-third (33%) of CEOs plan to award bonuses, while 10% plan to increase benefits.

To help CEOs tackle the challenge of how to keep their employees satisfied and retain top talent, we invited 3 Vistage members, A.J. van de Ven, Sara Patrick and Nate Ankrom, to share their unique strategies on how they plan to adjust wages and compensation in the coming year.

Highlights of their recommendations from this webinar include (password required):

Our panelists took some time to answer the following questions that came from the audience during this webinar:

1. How have you handled situations where loyal, longtime employees are underpaid compared to hiring a new employee for the same role?

SARA: MRO conducted a comprehensive compensation study in 2019 and established a pay philosophy that incorporates pay bands for each role/position. This resulted in some long-time employees getting fairly significant increases. We committed to conducting these comprehensive studies regularly and are doing so again in 2023. This also means that we are pay practices are equitable across the organization, regardless of the hire date.

NATE: On a case-by-case basis. Only a couple of instances. Ironically, they are also not enjoying the values and culture shifts being made. Moreover, both the staffers who have lamented their frustrations have remained.

A.J.: As with MRO, Calsense’s new benchmark resolves those issues long-term. However, in the past, this was certainly an issue. In fact, as recently as last year, we hired two new staff members, with the same title as a tenured team member, at a higher rate than the existing one was paid. The reason for the discrepancy was less driven by market prices and more by the quality of that team member. He was an important asset, but the new team members brought more experience than he had, despite his tenure. It was a difficult discussion when he called us out on it, but we had a good conversation and explained what he could do to move up in his pay. He’s since committed to doing so and remains with the company.

2. How is your bonus system structured?

NATE: We do not have a formal bonus system. We do have a 3% maximum and anything above that requires examples of the goals in performance. It also requires three more signatures to go above 3% from HR, CFO and myself. Those who do not wish to grow understand that we will not provide additional funds unless we are performing a COLA companywide.

A.J.: At Calsense, we use our incentive structure to increase total earnings based on both individual and company performance. The company aspect is both to reward all employees as the company grows as well as protect the company in the event sales slump. Each role has three bands of incentive comp, based on where the individual is on the pay scale. For example, it may be 5% of the total base, 10% and 15%. Half of the incentive comp is based on company growth and the other half is based on their performance using quantitative metrics.

3. How do you balance the different aspects of compensation across employees who may value them differently?

SARA: In addition to salary and incentive pay, MRO offers both a conventional health insurance plan and a high deductible health insurance plan. We offer 401K matching at 50% up to the IRS limit, which allows for those early in their careers to contribute as much or as little as they can, while those further along in their careers tend to maximize the contribution. Over 90% of staff contribute to the 401k plan. Additionally, MRO offers 4 hours of paid volunteer time and has a staff committee that identifies and sponsors group volunteer opportunities throughout the year.

NATE: We have the conversation. Some come out and tell you that time off is more important than income. So we provide more days off or balance of days/pay or pay.

A.J.: Similar to MRO, Calsense works to offer comprehensive benefits beyond pay. We’ve found it’s easier to both hire and retain top talent by offering benefits typically only found in larger organizations, such as 401(k). Some unique benefits include:

Beyond those, there are some employees who have indicated they prefer either a higher base and smaller incentive or vice versa. In these cases, we work to show them the value of what we’re offering and have gotten no pushback afterward.

4. What are some ways to reduce compensation for overpaid employees?

SARA: When we conducted our comprehensive compensation study reviewing all of the roles in the organization, we committed to staff that no one would have their compensation reduced. We had 5 instances where long-time staff members exceeded or nearly exceeded the established pay band for their roles. As part of our pay philosophy we adopted the ability for managers at their discretion to provide year-end spot bonuses to individuals who met/exceeded their established pay band. Ultimately, 2 of the 5 individuals pursued different roles within the organization which allowed them the opportunity for increased pay.

NATE: This is dependent on the situation. We have three employees who are well over. They understand that they cannot make any more based on benchmarking data for our region/nation/sector and the performance output. These are difficult conversations that we must have. So far, they have remained. Yes, we run the risk of losing them but at a lower cost to fill the gap of their exit.

A.J.: We have not reduced compensation for overpaid employees after conducting our benchmark study. We’ve explained to them what the pay scale is, where they are in relation to it, and what they need to do in order to grow if they want to make more money. We’ve also allowed them to remain eligible for their incentive pay.

5. How do I know if wages and salaries are at their optimum valuation, and how do I develop a bonus structure that works for us?

SARA: MRO contracted with Willis Towers Watson to conduct a comprehensive compensation study, which included salary and incentive pay. We chose WTW based on their knowledge of our industry and ability to translate specific roles and responsibilities to analyze compensation competitively. As part of this study, we also adopted a documented Compensation Philosophy that was shared with all staff. The Compensation Philosophy discusses pay bands and time to reach the mid-point.

NATE: Start with benchmarking your organization to the industry you serve regionally and nationally. Determine where you need to come up or where you have an issue to discuss with your team member on their pay hitting the ceiling. The bonus structure that I’ve seen before always tied it to annual performance goals and meeting the objectives of the company’s strategies. I’ve also seen it as a percentage of their salary typically — floor personnel is weekly, supervisors are monthly, managers are quarterly, and the ELT is either half-year or annually.

A.J.: Calsense partnered with Human Capital Resource Partners after interviewing three different comparable firms. Although there’s no guarantee that the pay scales are accurate, some basic benchmarking against Glassdoor and showed alignment, at least at the national average level. As for the bonus structure itself, the study didn’t provide a structure, but it did give enough insights for the leadership team and me to model different approaches. Our Director of Finance & Accounting was critical in that process, working up different approaches based on various past scenarios that we felt could occur in the future.

6. Curious if any of the panelists are using some form of open-book management or employee financial education of the business.

A.J.: Calsense is doing so. We have several financial acumen exercises we run with all of our team members. In fact, just last week during our annual conference, we did one where teams were given a series of transactions for a fake business and they had to build a P&L based on the information. Other exercises included giving everyone a hundred pennies, telling them they just made a dollar in revenue and walking them through the process of getting to a profit number. During all-hands in-person meetings, our Director of Finance & Accounting also has a binder with last year’s financials in it. Anyone interested in reviewing them with her can do so, but they’re not allowed to take photos and they’re reminded that the information is to be kept confidential. We’ve found that this level of financial transparency has resulted in more ownership thinking within the staff.

7. For those experimenting with traditional schedules, was your recently implemented work week (4-day or otherwise) a success? Have you heard from the employees if they enjoy it, more than just helping with gas prices, do you think they have a better work-life balance?

SARA: MRO has a hybrid environment where 95% of staff are expected in the office 2 days per week. We have discouraged Friday afternoon meetings and established Flexible Fridays where most people have worked 40 hours prior to noon on Friday and take the afternoon off. We piloted this Flexible Friday approach between Memorial Day and Labor Day in 2022. The boost in morale was huge and there was no lost productivity.

A.J.: Calsense’s 4-day work week has been a smashing success. As you mentioned, they certainly like the reduction in fuel expenses. More importantly, though, they love that they have a three-day weekend every week (and four-day weekends when there’s a holiday on a Monday). They’ve spoken about the additional time they get to spend with family and friends, get errands done, and so on.

8. For those who have incentive plans based on company and individual growth, what types of goals or measurables do you offer employees whose jobs are more administrative in nature?

SARA: MRO’s incentive pay is based 50% on corporate goals, 25% on department goals, and 25% on individual goals. All staff members have individual development plans which establish short-term and long-term professional goals. For administrative staff, individual goals may be based on skills-based training and education, improving accuracy in documentation (minutes, external communications), or expanding knowledge of corporate functions.

AJ: Non-revenue generating roles are always the most challenging to build metrics around. Everyone, from our shipping/receiving coordinator to our CEO, is on the same incentive program, which is a combination of company and individual performance. Some of the more administrative metrics include days sales outstanding, aged receivables, aged payables, number of inbound calls that go unanswered during business hours, budget to actual expenditures for their department, new social media followers, and so on. We generally focus on ratios and/or trailing twelve months for the measurements, both to handle correlated changes and to remove seasonality and unexpected spikes such as a successful marketing campaign or a large order in one month.

About the panelists:

AJ van de Ven

A.J. van de Ven, President and CEO of California Sensor Corporation dba CALSENSE

A.J. van de Ven is the president and CEO of smart irrigation technology pioneer Calsense which designs products and technologies to enhance water management efficiency and contribute to a sustainable future by saving the world’s most precious resource: water. A.J. has over fifteen years of experience in the landscape irrigation industry with extensive involvement in all aspects of the business. In this webinar, A.J. will be sharing how Calsense has conducted an in-depth salary study for all roles across the organization to ensure they remain competitive in the marketplace while also helping their employees to see their value add to the company’s growth.

Sara Patrick

Sara Patrick, President and CEO of Midwest Reliability Organization

Sara Patrick is the president and CEO of the Midwest Reliability Organization (MRO), a regulatory agency that operates as a cross-border Regional Entity under the delegated authority of the North American Electric Reliability Corporation (NERC). Sara joined MRO in 2008 and has served as President and CEO since 2018. In this webinar, Sara will share MRO’s unique strategy of paying out 100% of their annual bonus incentive for all as well as an additional year-end bonus and a parking stipend for all.

Nate Ankrom

Nate Ankrom, President of Genuine Machine Products Inc

Nate Ankrom is the president of Genuine Machine Products Inc, a build-to-print precision component and assembly contract manufacturer serving the Aerospace and Defense Industry Base. As a third generation in Manufacturing with a demonstrated history of working in the aviation and aerospace industry, Nate will share how Genuine Machine Products is providing additional holiday time off and absorbing insurance increases.