Compensation plans are designed to recruit, retain and reward talented employees. A great deal of thought goes into the measurements used, eligibility requirements and how the plans support enterprise-wide, business unit and individual goals.
But how do these plans hold up when business conditions change dramatically, or obstacles get in the way — like in a pandemic?
Robert Burns nailed it: The best-laid plans of mice and men often go awry.
For HR and compensation professionals, more thought than ever before must be given to developing compensation plans that are “antifragile.” That is, they are even stronger after some shock takes place. A business shutdown, shelter-in-place orders, natural disaster, product crisis — even a pandemic.
There are various ways rewards professionals can make compensation plans that thrive despite these unavoidable disruptions.
The rigidity of compensation plans of the past is gone. Today, like with other business practices, flexibility and agility win. Sure, compensation plans are created to reward employees with money for adding measurable business value. But compensation plans are also future focused. They give employees and candidates a clear sense of the company’s purpose and priorities.
Nassim Nicholas Taleb, a professor and author explained his research in the book, Antifragile: Things That Gain from Disorder. Taleb came up with the term “antifragile" because he thought existing words used to describe the opposite of "fragile," such as "robust," were inaccurate. When something is antifragile, it does not merely withstand a shock but actually improves because of it.
Taleb offered the following definition: "Some things benefit from shocks; they thrive and grow when exposed to volatility, randomness, disorder, and stressors and love adventure, risk and uncertainty. Let us call it antifragile. Anti-fragility is beyond resilience or robustness. The resilient resists shocks and stays the same; the antifragile gets better."
Here are three ways to make compensation plans antifragile:
Include a Statement About Disruption
Let employees know in compensation conversations, and as part of the plan description, that disruption is continuous. There are always going to be business interruptions and shocks. It is expected.
As such, while compensation plans are constructed with specific metrics, values and rewards in mind, flexibility is important, too. Sometimes, adjustments will be needed.
In the case of a business shutdown or event that significantly impacts economic activity and markets, we may take actions to protect the health and safety of our employees, consumers and communities. In turn, these actions may adversely impact our financial results. We may have reduced work hours, salary reductions and furloughs. Compensation plan components may be adjusted and components, such as performance targets, may be revised.
By explaining this up front, the employer and employee develop a higher level of trust and understanding. We are in this together, through thick and thin. That builds antifragility. We don’t want something bad or unexpected to happen, but when it does, we are prepared and we will get through it as partners, side-by-side. We can adapt and we will do what it takes to succeed together.
Intervals for Payouts
Many employers are moving away from annual salary adjustments and bonus payouts to more frequent periods, such as quarterly. Employees want to be rewarded at intervals closely tied to the results they are achieving individually and with their team members. An annual reward cycle just does not make sense to many employees. It is too long a waiting period to be recognized and rewarded for their contribution.
Employers can benefit by recognizing that associates want and expect more frequent salary adjustments and variable pay distributions.
Frequent payouts make a compensation plan antifragile by allowing employers to be flexible. If a situation occurs that impacts the business for a quarter, there is a built-in mechanism to adjust payouts for that period. In the next quarter, or the one after that, results may bounce back to be more in line with normal conditions. The employer and employee understand that the comp plan can still be responsive. There is less uncertainty about the resulting impact caused by a disruption.
Flexibility and agility contribute to antifragility.
Give employees more choices when it comes to comp plans. Forward-thinking companies recognize that associates want to work for employers that care about their well-being. People are attracted to companies that have a clear purpose and alignment with their beliefs.
How does this connect with making compensation plans antifragile? By including choices up front in the compensation mix that are not cash payouts, an employer is showing a willingness to be flexible. Such employers approach situations in different ways and give employees choices.
For example, instead of a portion of the cash bonus payout, employees can select:
- A reward choice that allows for the team to have three days off for community service with full pay.
- A reward choice that gives associates time off to take a course in support of an area of interest. This can be tied to preparing them for a new role or expanding their responsibility.
- A reward choice that awards employees with extra time off.
- A reward choice that accumulates time off (x days) toward a two-month sabbatical after so many days are banked in their “sabbatical account.”
Antifragility turns uncertainty upside down. Uncertainty is going to occur, and we can’t plan for everything. Compensation plans that are designed in an antifragile manner do not just resist disruptions and stay the same; instead, they get better.
About the Author
Ezra Schneier is a corporate development officer at HRSoft, Inc.