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Compensation: Why It (Almost) Doesn’t Matter 83

Examine Annual Reviews
A good way to see if your compensation package is adequately
addressing both performance and retention is to examine the content
of your top employees’ annual reviews (or whatever time frame you
use). Is the discussion equally about performance and retention (past
and future) or is it more about one at the expense of the other? If
there’s an untoward bias toward either past performance or future
rewards,then your compensation package is inadequately balanced.
Your compensation package should be designed in such a way as to
ensure that both the employees and their managers are equally con-
cerned about past performance and future rewards.
In the absence of job mobility, so long as the employee was being
paid reasonably in line with the market, he or she was likely to
stay with the employer indefinitely. So retention was not an
issue—and certainly not a compensation issue. Compensation
was all about performance.
Some organizations still think that way. Their compensation
policies are designed primarily with performance in mind;
adjustments to address retention are “bolted on” later (see side-
bar). The result is often a Frankenstein-like amalgamation of
incentives, bonuses, base pay, and perks that resembles in its
muddled complexity an amateur attempt at electrical wiring.
Compensation is no longer about performance alone. It’s
now about performance and retention. You must build in both
objectives right from the start.
Setting Your Retention-Related Compensation Goals
This book is not the place to discuss the classic, performance-
based goals of your compensation policies. (For that I strongly
recommend Recognizing and Rewarding Employees, by R.
Brayton Bowen, McGraw-Hill, 2000.) Here we’ll concentrate on
setting retention-related goals.
(Of course, we shall see that—especially for top employ-
ees—performance and retention are connected in a number of
ways. We’ll look at an example in the next section. But setting
operational performance goals—“How many blue widgets
should Joe sell this year?”—is outside the scope of this book.)