Pushing a Compensation Boulder?

[Read time: 5 minutes]

By: David J. Cocks, CEO

When your company's compensation plans were originally created, they were probably pretty simple and straightforward.

But then one of your top people was considering defecting to the competition, a new competitor entered the market, you acquired another company...

Now your plans are pretty complicated. You've got people grandfathered in. You've got exceptions – probably lots of different kinds of special deals.

When you think about updating your plans, there's a whole lot of baggage there.

Your compensation plans feel like a big boulder you are pushing uphill, with all kinds of sticks and leaves and moss and junk sticking out all over the place.

Making it move is a royal pain.

You think about chipping away at that – at making the changes you'd like to make in your compensation plans – but it just seems like it is going to be so painful.

It doesn't have to be like that.

You're getting caught in a trap.

Basically, you've been trapped by heuristics.

A growing body of research suggests that one of the ways humans have adapted to the complexities of modern life is by using heuristics, or rules of thumb, to navigate many decisions.

There are six heuristics that are recognized as being widely used in our daily lives, and a lot of them are relevant here:

Familiarity – the simplest decision in any given situation is the one you made the last time you were in the same situation. This means that it is easier to keep using your current compensation plans – making the same offers, handling problems the same way you have in the past – even if that isn't working well for you anymore.

Consistency – people want their actions to feel consistent, particularly if they are on the record as taking a particular position on an issue. If you've stated publicly that you are not going to change your plans or that you will meet offers by competitors, you feel you have to do that, even if it doesn't make sense anymore.

Acceptance – people want to be liked and accepted by others. This means it is hard, even for the toughest business owners, to do things that will cause others to resent them (including changing compensation).

Expertise – the natural tendency is to defer to the leader of a group or to those with the most expertise. Sometimes this means that people who have recruiting or financial expertise and state a strong position are the ones everyone falls in line with, even if those people don't fully understand the implications of the position they are advocating.

Social facilitation – people look to others like them when making decisions. If those people made a particular decision, the easiest decision for others is to make is the same decision. But this leads to group-think, rather than risk-taking.

Scarcity – people value opportunities in proportion to the risk that they will be taken away, which is why we all respond to time-limited offers or the news that "there are only 4 left at this price." This can come into play when a competitor is trying to steal away one of your people. Having a competitor want them can make them seem even more desirable than they are, and can lead to making special deals that are not cost- effective for the company.

When you combine all of these rules of thumb, you can easily see why it looks like it makes sense to keep pushing that boulder uphill – even as it gathers more and more junk as you go.

But sometimes the right answer is to leave that boulder right where it is. Walk away from your company's current compensation plans and start anew.

Look at what your sales associates want now – not what they used to want or what you negotiated for years ago.

Look at your company's current expense structure, your current competitors, your current market opportunity.

Then design a set of compensation plans that work for you now.

You might find that you have a tiny little rock – instead of a huge boulder – to deal with. And it becomes surprisingly easy to maneuver, making your company more nimble and more responsive to what is needed now.

You just need to let go of those old rules of thumb.