Don't Forget the Back Office When Creating Variable Pay Programs
In the quest for market differentiation, it's not a fancy new name, a new logo, or a new coat of paint on a building that sets you apart - it's execution! And when we speak about execution, we're really referring to the actions and behaviors of all employees to fulfill the brand promise to the membership. Accessibility and fulfillment are the keys to member satisfaction. Having great salespeople isn't enough if the employees engaged in processing and fulfillment of service drop the ball. That's why measurement of back office success is so vital in a true sales and service culture. Neglecting the contributions of back office employees is a critical miscalculation. Pay programs that force great service employees to become marginal sales employees simply dilute the overall strength of the organization. The key is a willingness to develop multiple pay plans customized to various categories of employees under a credit union's pay program. One size doesn't fit all anymore. This means defining and demanding added-value from all employees, whether or not they are member-facing. This cultural shift has significant compensation implications. As employees are asked to contribute more, they reasonably want to be compensated differently. Historically, commissions, bonuses and other variable pay plans have focused on the front office; however, back office plans seem to be playing catch up according to D. Hilton Associates research. For example: *Higher performing credit unions are successfully competing and growing their businesses by actively setting goals and measuring success in both front and back office. *Higher performing credit unions emphasize variable compensation more than fixed compensation, while lower performing credit unions place more importance on positioning of fixed compensation (annual base salaries). *The most significant trend DHA research indicates is significant growth in the participation of traditional back office jobs in variable pay programs. As reported in DHA's staff compensation survey, during the period from 2000 through 2004, our research found an increase greater than 100% in the inclusion rate of back office jobs in variable pay plans. Variable Pay Participation Levels Changes in a credit union's compensation strategy require considerable planning. Here are some key steps: *Start with a Compensation Strategy that is integrated with business objectives and financial performance. The strategy positions each compensation element to encourage long-term success. *Reinforce Cultural Orientation with a reward system by determining what the credit union's culture holds in high esteem. *Involve Managers in the development of reward systems so that all managers present a consistent message to employees. *Take Incentives Deeper into the Organization by making more employees eligible for incentive awards. These awards are generally designed to create a line of sight relationship. *Leverage Incentives by controlling base salaries (striving to keep salaries at market median), emphasizing variable pay and paying incrementally more for exceeding business plans. *Stress Value Creation by educating employees to understand their role in value creation. *Benchmark Performance by externally validating financial performance compared to peers. *Communicate Consistently by explaining programs often. There should be no surprises relating to performance at the end of a performance period. *Be Committed to Not Rewarding Poor Performance through arbitrary, uniform or qualitative measures. High performing credit unions reward superior performance above all other considerations. Credit unions that have adopted variable pay programs for back office staff have found the process to be challenging, but worthwhile. The challenge comes from communicating overall strategy and objectives to the employees, such that there is a meaningful connection between their day-to-day objectives and the strategic direction of the credit union. Credit unions that have introduced variable pay plans to back office staff are enjoying increased market share, higher member satisfaction as well as greater employee satisfaction and higher morale. Interestingly enough, other benefits are being reported, notably: * Greater employee retention * Better teamwork * Easier employee recruitment * Better internal communications Credit union leadership today has great vision. Share it with your employees, engage and include them in your reward systems and watch your business grow.