People Management in SMEs: Compensation & Reward - (how) can SMEs compete? Interview with Richard Howell

Feb 22, 2019
Blog - Compensation & Reward

Richard Howell is a seasoned international HR and Organisation Development professional (see his profile below) and a business partner of Pleinert & Partner. We have chosen to interview Richard for this instalment of our SME-is-a-Racing-Boat series since entrepreneurial compensation models are well suited to the SME environment. Reward and remuneration is one of the areas of expertise Richard focuses on. The interview was conducted by Dr. Helena Pleinert.

Helena: Richard, in general an SME cannot match the salary levels that corporates offer. But compensation is a complex topic and with many different components and considerations. Are there ways for SMEs to compete after all?

Richard: That’s an interesting question. I think it appropriate to challenge some assumptions.

First, reward does not have to be complex. A number of companies, big as well as small, are choosing to keep it very simple and purely pay out cash. We need to remember that reward should be valuable in the eyes of the recipient. Cash is King when it comes to enabling personalized choice. The employee can choose what they spend their earnings on - for example - a car, insurance or fitness club membership.

Second, let’s remember that people are not motivated to join or stay in a company purely by monetary rewards. There are other considerations in the “value proposition” that an employer can present. The 2018 Decoding Global Talent study, conducted by the Boston Consulting Group, showed that getting recognition and working alongside good colleagues are the top goals workers in Germany. These kinds of factors are pretty much universally important too.

A sense of achievement, purpose, belonging and personal/professional growth are all engagement factors that can be cultivated and addressed without resorting to money. Such factors consistently score highly in the factors that attract and retain employees. I would argue that SMEs have the potential to compete and compare very well vs. large corporations on intrinsic reward and engagement drivers. Typically, the management and leadership of a smaller organisation have an easier job to shape and deliver positive culture and employee experiences at work, simply because they can more easily “reach” into and influence what happens in their business. 

Helena: So, are you suggesting that for monetary rewards SMEs should focus only on base pay reward?

Richard: No. Clearly there are some benefits that may be typical or fitting to a certain function or level of job. Leaving certain elements out of the reward package may make an offer unattractive or uncompetitive. So, a business leader or salesperson may expect; even “need” a financed company car as part of their pay. Companies can also leverage economies of scale in some cases to make certain reward components such as insurances or gym memberships available at favorable rates. One element that I definitely would consider building into a reward package would be a bonus or incentive scheme – linking an element of individual pay to performance elements.

Helena: What key factors should be considered in the design of a bonus scheme?

Richard: A bonus scheme needs to work in terms of providing a return on investment (payout cost) for the company. So, the mathematics of the payout equation need to ensure it generates more value than it costs to finance, as well as in relation to the time and energy needed to run or administer it.

A key consideration is to consider to what degree the payout is linked to company, team (or department) or individual results. Often variable pay will be determined by a weighted mix of such considerations; so reflecting macro (business) as well as more micro (team or individual) results. Thus, a bonus scheme has the potential to steer people’s attention and, ultimately, behaviors and efforts – in line with the components that are reflected. Some companies decide to be more “collective” in their approach; others more “individual”. There is an element to which bonus scheme design reflects culture or a philosophical decision.

Finally, the payout curves for the bonus elements need to be carefully constructed. What is the minimum performance vs. target at which a payout is permissible? How will the payments accelerate or decelerate as the results delivered gain momentum toward or even beyond the target level or target levels in place? A good scheme should also have a mechanism to incentivize and “above and beyond” performance.

I think this covers the most critical considerations in a nutshell.

Helena: Thank you for providing these insights and tips. I am sure our readers will have been given some valuable food for thought.

 

Richard Howell is a seasoned HR international professional with extensive experience in designing and delivering business focussed change and performance solutions. This includes setting up pay and reward models for a variety of businesses. Richard has also run masterclasses and workshops on principles and practices of pay and bonus scheme design for business leaders. He has a degree in German with IT, a postgraduate qualification in HR and is a Fellow of the Chartered Institute of Personnel Management and Training, the highest accreditation for UK qualified HR professionals.