As Seen in CFO Studio Magazine Q2 2017 Issue
AN INCENTIVE PLAN THAT REWARDS ALL EMPLOYEES IS PAIRED WITH BROAD TRANSPARENCY
Morale is high, people work hard and seem content, and every employee knows what’s going on behind the scenes at Kepner-Tregoe in Princeton, NJ. The multinational management consulting and training services firm implemented an incentive program as the market started to rebound after the global financial crisis of 2008 – 2009, and, at the same time, took the opportunity to offer employees greater transparency into its financial performance. As a result, “People are motivated in their roles, responsibilities, and decision-making; they’re educated about the business, and all that adds up to a sense of empowerment among the staff,” said Bill Baldwin, CFO and a Kepner-Tregoe Principal.
Mr. Baldwin spoke on “Driving Employee Performance and Engagement – Sharing Financial Intelligence and Insight” at an invitation-only dinner discussion attended by CFOs from New Jersey– area middle market companies. The event was held recently at Agricola Eatery in Princeton and is part of CFO Studio’s Executive Dinner Series.
Mr. Baldwin said the company instituted the incentive plan as a way of rewarding employees for their loyalty and sacrifice during a difficult time that, as at many organizations, included belt-tightening and cost-containment measures. And that naturally led to greater financial transparency. “It just seemed right to let people know if they’re on track to making their goals.”
A Pat on the Back
When the incentive program kicked off about seven years ago, every employee received a 10 percent bonus at the end of each quarter if the operating profit plan within their region was met. “This really registered with people,” said Mr. Baldwin. “It was motivation for them, and it changed their behavior in the business.”
While some incentive plans are based on revenue, “ours is centered around operating profit, and that has significantly altered the way employees view their decision-making when it comes to expenses,” said Mr. Baldwin. “They may reconsider the type of hotel they stay at, or choose a different beverage while dining or meeting with a client.” It’s up to the employee, he noted, “and that’s been empowering.”
These quarterly incentives are now team-based, he noted, since an annual incentive program has been adopted as well, to reward employees according to their individual performance record at the end of the year. “It’s all paid off because people take more ownership and accountability in the overall success of the business.”
With all employees striving to achieve personal and team-based incentives, “we thought it only fair to provide them with greater financial transparency” in an effort to eliminate what Mr. Baldwin called the “surprise factor.” He explained: “We don’t want to reach the end of a quarter or the year and have people surprised that the company or the region has not done as well as they might’ve thought.”
So for the past several years, Mr. Baldwin has been issuing a weekly report to all employees detailing the bookings for the current and next quarter, and comparing that number to the quarterly plan and forecast by region for the entire company.
The report also highlights anyone who has sold a new piece of business over a certain dollar amount in the past week. “When people see their name in lights, so to speak, they love it,” said Mr. Baldwin, who also calls or sends an email congratulating those high achievers. “That’s been very motivational, and great for morale.”
In addition to this weekly report, Mr. Baldwin and the CEO hold quarterly WebEx events (open to all employees) to provide an update on how the company is doing — both regionally and as a whole —what the future looks like, and how the incentives are shaping up. “We try to be as forward-looking as possible to give people an idea of what we expect the results to be for the year,” all in an effort to keep everyone informed from a strategic, operational, and financial standpoint.
“We are as open and honest as we can be with our messaging, and we’ve learned that it has to be repetitive and in terms to which people can connect.” To that end, employees are routinely educated on how to interpret the data contained in the reports, what the trends mean to them, and how the numbers are used by management. “We know we’ve been successful when folks start asking questions, and it becomes more of a two-way conversation. We’ve engaged them, and nobody has been kept in the dark,” said Mr. Baldwin.
Joseph Tammaro, Sector President at TD Bank, North America, and a CFO Studio Business Development Partner, pointed out that one of the biggest challenges in any organization is an “us vs. them” mentality. “It’s encouraging to hear the ultimate outcome of such transparency. A strong cultural foundation has been established, along with buy-in from the employee base who, as a result, will do what needs to be done to secure the viability of the company to move forward.”
Too Much of a Good Thing?
Overall, dinner attendees responded positively to Kepner-Tregoe’s methods, but a few questioned whether it was possible to be too transparent. Mr. Baldwin responded by acknowledging that there are, indeed, risks to transparency. “If a region is having a quarter where they don’t think they’ll make their results, but the next quarter is looking strong, we have to be careful that people don’t manage earnings from a soft quarter into a good quarter, or from one year into the next year.”
In addition, he said, there’s a fine line between being open and honest, and not creating anxiety or panic when business is not as good as usual. “We have to be very careful about our delivery because the last thing we want is people worrying about possible cost-containment actions or that their jobs may be cut.”
Mr. Baldwin believes the frequency of the messaging helps to quell any real fears. “We’ve been doing this for several years now, and people have matured in their thinking and do understand that there are cycles to any business and sometimes there are soft quarters.” And it doesn’t hurt, he added, that “in good quarters, every employee is recognized with a reward for a job well done.”