How do you communicate the value of your compensation plan?

How do you communicate the value of your compensation plan

Let’s imagine that you have a retention issue at your organisation. It started around 9 months ago, and you are seeing a growing trend in resignations from employees in a certain job family.

We all know that resignations cost a lot of money to the organisation, and even more so when “good” employees leave.

So you first step is to calculate these costs. You know, the usual : cost of the recruitment agency, time spent by the resourcing team and hiring manager, costs to bring the candidate in for interview…. and then, if you can, the indirect costs as well such as the productivity loss, ramp up time etc.

In parallel, of course, you have studied what may be the cause of the jump in attrition, and you are putting in place the plans necessary to reduce this risk. These plans can be about the culture and relationships in the team, the manager style, offering more appropriate career opportunities etc.

But not all answers are about the “soft” aspects of team management. You may also need to address your retention issues through the implementation of programs within the total rewards sphere. Here are 3 random examples :

  • a retention scheme to make the cost of leaving higher to the employees because they don’t want to lose the future payments they were expecting (loss aversion is a more powerful driver than the prospect of gain opportunity – but that is the topic for another post),
  • a recognition scheme to boost morale and make employees feel valued,
  • a spot incentive tied to a light challenge between groups to instil a degree of friendly competition and reinforce the team spirit.

The cost of implementing the program is 438k. You estimate that it will reduce attrition by x number of employees, and you will therefore save 3.4 millions.

It’s time for you to go the CEO to present your plan and request the funds.

Most HR or Compensation pros would go and say : “We want to implement a retention scheme for job family X. It will cost 438k, which is only 12.9% of the anticipated savings. Explanations, details, bla bla bla”.

You calculated the cost compared to the savings : 438,000/3,400,000=0.1288.

There is nothing wrong with 12.9%. It is a good number to show. It is the truth, as much as you can anticipate it.

But what if you went to your CEO and said : “We want to implement a retention scheme for job family X. It is an investment of 438k, and the anticipated Return On Investment (ROI) is 776%. Explanations, details, bla bla bla” ?

This time, you calculated the savings compared to the investment : 3,400,000/438,000= 7.7625.

This calculation is also the truth, as much as you can anticipate it.

Which one do you think is most likely to get approved ?

The project which costs nearly 13% of the anticipated savings, or the investment that will return nearly 8 times ?

(Also note the use of the word investment vs cost).

I have already written about the importance of communication and how we express things when we want to get buy-in and gain credibility in the organisation. This skill is crucial in the business world and you need to always try to put yourself in the audience’s shoes when you craft and deliver your message.

So always try to anticipate what your CEO and CFO will think next time you need to go ask for extra budget to solve a crisis in your organisation.

Bonus tip : If you have access to your company financial results, you can easily calculate another ratio and therefore add another killer sentence like : “These are savings of 3.4 millions. In order to generate 3.4 millions in profit, the company would have to generate XX millions in extra revenue/operating income. We believe this 438k investment is definitely worth it.”

Let me know if using these approaches helped you !

With thanks to my friend Tom for inspiring me, a few years back, with his real-life example.


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