Part of Bob’s continued ramblings. This one covers an overview of the how and why we do reviews and our compensation.
We like to do reviews and compensation adjustments on an annual basis. There are a number of positives around doing this on an annual basis:
- It aligns with the company calendar. Since we know how we will do in the current year by November, it allows us to determine bonuses based on company performance. It also allows us to develop the budget for the coming year as we allocate a certain % increase across employees.
- Managers are more efficient. They can think about reviews in a more concentrated way rather than sporadically thru the year.
- Provides for Better Leveling of Employees. When looking comprehensively and deeply across the organization, we can identify if we are at least trying to level people appropriately. Some people may be advancing very rapidly in their careers and this helps make sure they are being compensated appropriately. And the reverse, when some are not contributing as much as others it is easier to do collective comparison and leveling.
Over the past several years we have begun to develop some written forms into the review process. I happen to think the important part is for the manager to listen to the employee, and provide some feedback and guidance. Here are the topics I like to discuss in an open ended way:
- What went well last year?
- What could have gone better?
- What are your plans to grow next year?
- What did the company do well last year?
- What could the company have done better?
I also like to do that within the context of how we think about compensation adjustments (more on that later):
- Company Revenue and Profitability Goals
- Your contributions to the team
- Your individual contributions
We have a few written questions to help spark the conversation:
- List your most significant accomplishments or contributions since last year. How do these achievements align with the goals/objectives outlined in your last review?
- Have you successfully performed any new tasks or additional duties outside the scope of your regular responsibilities?
- What activities have you initiated, or actively participated in, to encourage camaraderie and teamwork within your group and/or office? What was the result?
- Describe your professional development activities since last year, such as seminars/classes (specify if self-directed or required by your supervisor), onsite training, peer training, management coaching or mentoring, on-the-job experience, exposure to challenging projects, other—please describe.
- Describe areas you feel require improvement in terms of your professional capabilities. List the steps you plan to take and/or the resources you need to accomplish this.
- Identify two career goals for the coming year and indicate how you plan to accomplish them.
- What is the Company doing well?
- Where can the Company improve?
We set an overall budget for salary increases each year, and then ask each manager to try to fit their team into their slice of the budget. There are several things we consider when doing this:
- What the company can afford given projections for the coming year. We strive to run a solid company that is cash flow positive and profitable.
- Broader economic environment. This was our first year where there was high inflation, and we allocated a higher % budget increase than than we ever have.
- Competitive compensation. We want our team to make above average compensation relative to industry standards since we try to attract and keep above average people. We typically give our development organization a higher allocation than other departments given the competitive environment. Also since we are a product led, technology first company, we make sure we are investing in our foundation.
- Allow budget for career growth. Some of the compensation increase people get is because of the above two elements, but we also need to make sure we allocate budget for individual growth. For example, a developer may join us out of college, but over the next several years progress rapidly in their ability to contribute to the company.
The net effect of this in addition to the leveling we try to do result in a diverse set of salary increases ranging from 0% to 10%+. The 0% increases are always hard, and are really the result of us hiring a person at a high level of salary, and the performance relative to peers is not consistent with that salary level. I hate those situations and it is much better for everyone to see progress in compensation over a number of years, helping to provide motivation to continue the positive momentum. 0% increases are not necessarily a message that the person is not contributing, it is just the only way we can make sure there is alignment in contribution and compensation.
Profit Sharing Bonus
We have a bonus program that is driven by three factors:
- Company goals for Net Revenue and Profitability
- Job function and level
- Individual performance
If we hit 100% of our revenue and profit goals, then we pay a target bonus amount if the employee is performing well. We did not hit our goals this year, so the total pool is reduced. In 2021 we overachieved our goals, and we had a 100% bonus pool and then were planning on spending the over pool on a company trip to Disney to celebrate making it thru the pandemic only to get stopped by Omicron. We instead distributed $2,000 bonus checks to everyone. Our plan for 2022 was too aggressive as we expected race participation to come back to normal levels and it did not. We grew revenue 28% overall this year, but that was short of the goal, and affected profitability. Hence the lower bonus for the year – which we have been communicating for the past 6+ months so there are no surprises at review time (although I am sure some disappointment). The executive team is all receiving less than the average as we made some bad decisions for the company.
This alignment of compensation to company performance makes our team more aware of what we are doing and more engaged in the business and helping our customers. It also allows everyone to share in success, and to all absorb the pain of missing goals to have full alignment.
We hopefully will have a good year in 2023.
Our philosophy on benefits has two objectives:
- Try to provide benefits that allow an employee to focus on their job
- Try to align with long term thinking
For medical, we fully cover the monthly cost of a high deductible plan ($2,500 individual, $5,000 family), but give each employee $2,000 into an HSA. So the max out of pocket for an individual is $500, and $3,000 for a family. Fortunately, most employees have less than that in a normal year so it is a long term savings mechanism.
We are a remote work company, and have always been that way. We make sure all employees have good work setups with monitors, desks, etc. Some have individual offices since their homes are not conducive to work, and some work together in a shared space like we do in our main office in Moorestown or lead sales office in Richmond. People appreciate the flexibility.
We currently have a Simple IRA and do a maximum 3% match. We are likely moving to an IRA this year and may expand the 3% match.
We also award all employees options. This is a tax efficient way to distribute ownership in the company to all employees. This year we will be paying a dividend of $0.01 for each share, and we hope to increase that over time as another way company performance can benefit our employee-owners. Also, if we ever decide to sell shares to an outside investor, there is a potential for being a part of that depending on the form of capital.
I do have to conclude with the statement that I hate having to decide on compensation. I wish we could pay everyone lots and lots of money and make our products free. But there needs to be a balance to a company where employees, customers and owners are on a equal playing field. This is our attempt to keep that field level.