Use these four common sense pillars to build your firm’s compensation strategy.
One of the critical discoveries I made as CEO of my own consulting firm, and in helping other AEC firms to create talent programs, is that a business philosophy must drive a business trajectory, not the other way around. In other words, deciding who and what your firm is at heart must precede determining what you will do. Don’t take my word for it, just take a long careful look at the most vibrant, resilient, and healthy firms among us and you’ll see a clarity-of-purpose and clearly defined core values at the very foundation of their strategic direction. They “see” the broader forest before tending to individual trees.
I submit to you that there is a brilliance in that this can and should frame every part of your firm’s key initiatives. Take the issue of compensation, recruiting, and retention. I doubt there is anyone who would argue against the fact that this trio represents the most significant collective challenge facing AEC firms today. Unfortunately, people everywhere talk about this subject as if it’s some great, transcendent, elusive enigma that can only be decoded by the mathematically elite among us. I suppose that would be true if your firm is sailing rudderless with no “clarity of purpose” or core values to lean into. Granted, this topic has its complexities to be sure, but the fact of the matter is that the right philosophy will ultimately guide you into the right trajectory for your firm.
Here’s a common sense example of that: Make it your clear purpose as a firm to pick the right people, then give them opportunity to shine, grow, and advance, and then create reasonable compensation as a catalyst behind them. I mean, there’s nothing elusive about that! You do that with your people, and you almost don’t have to manage them. You do that with your people, and you almost never have to look over your shoulder for resignation letters. They fit the vibe in your firm. They’re succeeding and advancing and happy. They’re being paid a very reasonable salary, and they’re being rewarded frequently and competitively when they deserve it. Folks, that’s a solid philosophy at the foundation of a potent people strategy. That’s seeing the forest through the trees.
Let’s isolate this down to just the issue of compensation. Of course, it would be easy to throw a bunch of data and stats at you (I intend to do a little bit of that; I’m a consultant after all!), but we’re not here to start with data, right? Without a compensation philosophy guiding us we’ll just get lost in all of that; and as we all know, too much information tends to kill common sense. So, let me offer just four basic pillars of a ground-level compensation philosophy upon which to build a potent compensation strategy. A philosophy of compensation should address:
- Attracting and retaining talent. Common sense tells us that compensation clearly plays a significant role in attracting top talent to join a firm. Moreover, employees are more likely to stay with a firm that values their work through the expression of fair compensation. No one needs a statistic for that! A good compensation philosophy begins with simply knowing the value of knowing your employees’ value. Researching and offering compensation structures that are in line with industry standards and regional norms is pretty essential for getting great people – and keeping them!
- Motivating performance. A recent Society for Human Resources Management study reported that companies typically see 22 percent to 45 percent increase in productivity as the result of well-designed incentive programs. Again, this comes as no surprise because clearly when employees feel like their efforts are directly and fairly linked to their compensation, they’re more likely to work hard and perform at their best. And what better way to encourage employees to contribute to your firm’s success than by aligning their behavior with your firm’s key objectives!
- Establishing equity and fairness. With all the feverish recruiting going on in this breakout economy, compensation has clearly gotten out of whack. And yet, Zweig Group’s 2023 Recruitment & Retention Report reveals that only 53 percent of firms surveyed intend to conduct a pay equity analysis as a planned initiative for 2024. Common sense tells us that a healthy compensation philosophy should foster fairness and equity within your firm, and that employees who perform similar roles with similar qualifications and experience should ideally receive similar compensation. Ensuring pay equity will go a long way toward preventing feelings of resentment and ultimately attrition in your firm. In fact, it helps to cultivate a positive and productive work environment.
- Achieving cost management. At the risk of stating the obvious, the single greatest expense for AEC firms is payroll. Again, the 2023 Recruitment & Retention Report indicates that, for most firms, direct labor alone accounts for 30 percent or more of net service revenue. A good compensation philosophy strikes the right balance between offering competitive compensation and maintaining profitability. Unfortunately, there’s no silver bullet for this, but common sense tells us that tying a reasonable chunk of employee compensation to being “at-risk” against profitability not only mitigates the direct cost of wages but has the dual benefit of incentivizing your workforce to mobilize around achieving greater profitability.
None of this is rocket science. If you can’t see the forest for the trees, go for a walk in the forest! Start by asking yourself, “Does our firm’s compensation structure capably attract and retain talent? Does it aptly motivate employee performance? Does it establish equity and fairness? Does it achieve cost management and drive profitability?” Establish your compensation philosophy on these four common sense pillars and let them drive every element of your compensation strategy.
Jeremy Clarke is the director of executive search and recruiting at Zweig Group and the CEO of Emissary Recruiting Solutions. Contact him at email@example.com.