There is a simple 7-step approach:
- Start with small business units or groups that are receptive to the idea.
- Make sure the bosses give their needs and input up front.
- Let people in the plan have input to the plan design along with their bosses and someone who has done this before.
- Define measures that employees can control that also drive company value.
- Come up with incentive payouts tied to measures that are appetizing (more than 20% of base pay).
- Work out a list of scenarios that show how people will be paid under a wide range of different business outcomes and check that:
- The plan is self-funding.
- The company gets significant value for every scenario where there is significant payouts to employees (the company should get over 50% of the value created).
- The payouts are fair, equitable, and scaled to value contributed for each group or individual covered.
It is a simple approach.
There are two steps in the above that may or may not be tricky for you.
The first possibly tricky bit is step 2, soliciting input from the bosses on what they want or need from a new compensation program. If you have questions on this, I have provided an appendix section called “Conducting a Pay System Diagnostic”. The section shows you one way to do diagnose current problems with pay and develops input on what would be better.
The second possibly tricky bit is step 4, defining measures that employees control that drive value. For some companies it is very clear what employees do to drive value. For others, it is less clear. If you are in a company where the value drivers are less clear or contentious, more detail is available at EWYK.com.
That is about it. Keep in mind the principles we have discussed. Implement a system that provides for both motivation and alignment. A motivating plan must be simple, clear, actionable, reliable, appetizing, and frequent. A plan that aligns interests of employees to the firm interests is value-linked, self-funding, partly long-term, and open to feedback. Remember the tips and traps as well.
It is actually simple to implement an Eat-What-You-Kill pay system. However, it does take time since pay is a sensitive and political issue.
That is how to implement a plan for your company or unit. You may be asking now, “Well, that is great for the company, but what about getting me the piece of the action that I deserve?